UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-KSB

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2003
                   -------------------------------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ________________ to __________________

                         Commission File Number 0-11353

                           CIRCUIT RESEARCH LABS, INC.
              (Exact name of small business issuer in its charter)

        Arizona                                            86-0344671
    ----------------                                   -------------------
    (State or other                                    (I.R.S. Employer
    jurisdiction of                                    Identification No.)
    incorporation or
    organization)

                              1302 West Drivers Way
                              Tempe, Arizona  85284
--------------------------------------------------------------------------------
     (Address of principal executive offices)    (Zip Code)


Issuer's telephone number, including area code  (480) 403-8300
--------------------------------------------------------------------------------

         Securities registered under Section 12(b) of the Exchange Act:

                                      None
                                 ---------------
                                (Title of Class)


         Securities registered under Section 12(g) of the Exchange Act:

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
Common Stock, par value $.10 per share                  None

                                        i
<PAGE>
     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The issuer's net revenues for the year ended December 31, 2003 were
$12,381,834.

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the average of the high and the low prices of the
registrant's Common Stock as reported by the OTC Bulletin Board on March 31,
2003, was approximately $627,407.  Shares of voting stock held by each
executive officer and director and by each person who owns 5% or more of the
outstanding voting stock have been excluded in that such persons may be deemed
affiliates.  This determination of affiliate status is not necessarily
conclusive.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

         4,172,533 shares of Common Stock outstanding on March 30, 2004


                       DOCUMENTS INCORPORATED BY REFERENCE

     No documents are incorporated by reference to this Form 10-KSB.

     Transitional Small Business Disclosure Format (check one):
           Yes [  ] No [X]




                                       ii
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                                TABLE OF CONTENTS
                                                                          Page

PART I ...................................................................  1
     ITEM 1.  DESCRIPTION OF BUSINESS ....................................  1
     ITEM 2.  DESCRIPTION OF PROPERTY .................................... 12
     ITEM 3.  LEGAL PROCEEDINGS .......................................... 13
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........ 14

PART II .................................................................. 15
     ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ... 15
     ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .. 17
     ITEM 7.  FINANCIAL STATEMENTS ....................................... 35
     ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE ..................... 58
     ITEM 8A. CONTROLS AND PROCEDURES .....................................59

PART III ................................................................. 60
     ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
              CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
              THE EXCHANGE ACT ........................................... 60
     ITEM 10. EXECUTIVE COMPENSATION ..................................... 64
     ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT ............................................. 66
     ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............. 68

PART IV .................................................................. 71
     ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ........................... 71
     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. .................... 74

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

      We develop, manufacture and market high-quality electronic audio
processing, transmission encoding and noise reduction equipment for the
worldwide radio, television, cable, Internet and professional audio markets.
Our main product lines control the audio quality and range of radio, television,
cable and Internet audio reception and allow radio and television stations to
broadcast in mono and stereo. We operate through two divisions, our Orban
division and CRL division, and we generally refer to the company on the whole as
"CRL". Our Orban division manufactures and markets audio processing equipment,
primarily using digital technology, under the Orban, Optimod, Audicy and
Opticodec brand names.  Our CRL division also manufactures and markets audio
processing equipment, primarily using analog technology, under the CRL,
Millennium, TVS and Amigo brand names.  We believe that both divisions are
associated within the industry with innovative and quality broadcast equipment
solutions.

      We were founded in 1974 as a broadcast industry consulting company.
Building upon our understanding of the broadcast industry's needs, we expanded
into product development and manufacturing and were incorporated in Arizona in
March 1978.  Since the introduction of our first product, which was designed to
improve the "coverage and quality" of AM radio stations, we have been committed
to improving broadcast quality.  We were a major participant in the National
Radio Systems Committee (NRSC), which developed the standards for AM radio
stations that were adopted by the Federal Communications Commission (FCC).
During 1987, we developed and produced equipment enabling AM radio stations to
meet certain NRSC standards, and we believe that we are a market leader in the
manufacture of AM radio signal processing equipment.  We are a member of the
National Association of Broadcasters (NAB).  The NAB is the world's largest
broadcasters' association, offering a wide variety of services to radio and
television stations as well as organizations that provide products and/or
services to the broadcast industry.

      On May 31, 2000, we acquired the assets of Orban, Inc., a wholly owned
subsidiary of Harman International Industries, Inc., including the rights to the
name "Orban."  Since its founding in 1974, Orban has been an innovative producer
of audio editing and processing equipment.  Today, Orban is a leading
manufacturer of broadcast transmission audio processing equipment. Because
approximately 80% of our historic CRL products are analog and 80% of Orban's
products are digital, our acquisition of Orban has combined two complementary
product lines.  We are now in a position to offer a full range of digital and
analog audio processing solutions at multiple price points. Additionally, we
benefit from cost savings produced by combined research and development,
marketing, sales and administration, manufacturing efficiencies and
cross-selling opportunities.  Our objective is to grow through constant redesign
of our existing products to keep pace with technological improvements and
through expansion into the emerging markets of digital audio broadcasting (DAB),
digital television (DTV), cable television and Internet-related audio delivery.


      We have reduced our net 2002 loss from $2,135,039 to $384,877 during 2003.
Despite this encouraging trend, our previous financial results have strained our
liquidity, causing us, in 2001 to renegotiate our $8.5 million loan agreement
with Harman.  Under the terms of our debt agreement with Harman International as
now in effect, Harman can demand at any time that we immediately pay in full the
outstanding balance of our debt. Should this happen, we would immediately be
forced to file for protection under Chapter 11 of the United States Bankruptcy
Code.  Our inability to pay the remaining $7.9 million in principal and $1.2 in
accrued interest to Harman, should payment be demanded, our difficulties in
meeting our financing needs and our negative working capital position have
resulted in our independent public accountants adding a "going concern" emphasis
paragraph to their report on our financial statements by including a statement
that such factors raise substantial doubt about our ability to continue as a
going concern.

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<PAGE>
     In addition to our efforts to reduce costs and increase sales, we are
currently seeking sources of long-term financing.  However, the inclusion of a
going concern emphasis paragraph by our independent accountants generally makes
it significantly more difficult to obtain trade credit or additional capital
through public or private debt or equity financings. We have renewed our
engagement with HD Brous & Co., Inc. to advise and assist us in capital raising
efforts. We cannot offer any assurances that we will be able to attract
additional capital or that additional financing, if obtained, will be sufficient
to meet our current obligations.  If we cannot meet our current obligations, our
ability to continue as a going concern will be jeopardized.


     Management for some time has been negotiating with Harman Acquisition
Corp., a wholly owned subsidiary of Harman International Industries, Inc., with
respect to restructuring the existing debt of the Company to Harman of
$8,482,000 in principal at December 31, 2003 is outstanding and bears interest
of 12% per annum.  If such a restructuring occurs under the terms presently
being discussed, the Company will need to make a principal payment of $1,000,000
(which can be made in installments), following which the interest rate on the
unpaid balances will be reduced to 6% per annum retroactive to April 1, 2003.
$3,500,000 of the unpaid balance will be converted into 19% of the common stock
of the Company, and the remaining unpaid balance will be payable over five years
in accordance with a payment schedule.  No agreement has yet been entered into
with Harman, and if no agreement is reached, the principal balance of $8,482,000
plus interest at the rate of 12% per annum will continue to be payable on
demand.  There is no assurance that the Company can reach a final agreement with
Harman for restructuring of the debt, nor that the agreement, if entered into,
will contain the same terms presently being discussed. As of December 31, 2003,
we are in arrears on interest installments on the Harman obligation in an
aggregate amount of $698,984 (at a rate of 12% per annum).


INDUSTRY OVERVIEW

      Audio Processing

      The audio processing equipment that we produce is used by radio and
television stations, recording studios and Internet webcasters.  Audio
processing enhances the clarity of a radio signal, boosts loudness and increases
a broadcast station's coverage area.  Our equipment "repackages" audio signals
produced by microphones, recordings and other audio sources. The equipment
alters such signals to control audio loudness and tonal balance (equalization)
prior to transmission.  Audio processing shapes the audio sound wave when it is
in electrical impulse form before it is transmitted by a carrier wave.

      Most governments throughout the world require radio and television
broadcast stations to control their signal's modulation level and occupied
bandwidth.  Radio and television stations must utilize audio processing to
comply with these governmental regulations as well as to improve the quality of
their signals.  According to the FCC, there were approximately 13,500 radio
stations and approximately 4,500 television stations licensed in the United
States as of December 30, 2003.  The Information Resource Center of the
National Association of Broadcasters, using data compiled by the Central
Intelligence Agency, calculated the number of radio stations and television
stations worldwide, as of January 2003, to be over 48,400 and over 19,200,
respectively.  Although there has been consolidation in the radio industry in
the United States, it is our experience based upon our sales trends that demand
continues to be strong for quality audio processing equipment, although there is
no trade or industry group that maintains this type of data.  Based on
replacement equipment orders, we estimate that the average useful life of audio
processing equipment is less than five years, and improvements in audio
processing equipment cause some radio and television stations to replace
equipment before the end of its useful life.

                                        2
<PAGE>

       Our recently developed products, such as those related to digital audio
broadcasting (DAB), are appropriate for the audio processing needs of the
recording and performing industries.  Digital audio broadcasting, which is the
digital delivery of broadcasting signals, enables FM radio signals to be near CD
quality in terms of clarity and enables AM signals to offer sound quality that
is comparable to today's analog FM signals.  Digital audio broadcasting is
widely regarded as the future of radio because it makes more efficient use of
crowded airwaves, provides better sound quality and is virtually immune to
interference.

      The Internet

      The Internet has grown rapidly in recent years, spurred by developments
such as user-friendly Web browsers, the availability of multimedia PCs, the
adoption of more robust network architectures and the emergence of compelling
Web-based content and commerce applications.  The broad acceptance of the
Internet Protocol standard has also led to the emergence of intranets and the
development of a wide range of non-PC devices that allow users to access the
Internet and intranets.

      Much of the Internet's rapid evolution towards becoming a mass medium can
be attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences.  Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
e-mail services to a much richer environment, capable of delivering graphical,
interactive and multimedia content.  Prior to the development of streaming media
technologies, users could not play back audio and video clips until the content
was downloaded in its entirety. As a result, live Internet broadcasts were not
possible.  The development of streaming media products from companies such as
Microsoft Corporation and RealNetworks, Inc. enables the simultaneous
transmission and playback (i.e., the Internet broadcast) of continuous "streams"
of audio and video content over the Internet and intranets.  These technologies
have evolved to deliver audio and video over widely used 28.8 kbps narrow
bandwidth modems, yet can scale in quality to take advantage of higher speed
access that is expected to be provided by xDSL, cable modems and other emerging
broadband technologies.  We believe there are now over 6,100 radio stations with
Internet sites.  This includes over 4,700 radio stations that are offering
Webcast or streaming services. With the Internet having no geographic limits,
thereby allowing a worldwide audience to listen to existing radio stations, the
potential for generating revenues can increase.  The audio quality of these
Internet radio streams still lags behind that of conventional audio.  We believe
that we already have many of the solutions for the audio quality issues being
presented by these new formats and delivery systems, as outlined below.

                                        3
<PAGE>
BUSINESS PLAN AND GROWTH STRATEGY

      Our strategy consists of the following:

      Integrate Orban Operations.    We continue to integrate the operations of
the former Orban with our existing operations in order to achieve economies of
scale, manufacturing and marketing efficiencies, reduced operational expenses
and cross-selling opportunities.  The combined operation of Orban/CRL provided
many new products and product lines.  Both Orban and CRL products have been and
will continue to be sold through dealership networks as well as international
distributors.

      Focus on Core Audio Processing Business.    We will continue to focus on
growing our core audio processing business because:

      * We believe that we are a leading producer of broadcast transmission
        audio processing equipment for the broadcast industry;

      * Although there has been consolidation in the radio industry in the U.S.,
        it is our experience based upon our sales trends that demand continues
        to be strong for quality audio processing equipment, although there is
        no trade or industry group that maintains this type of data;

      * Based on replacement equipment orders, we estimate that the average
        useful life of audio processing equipment is less than ten years, and
        improvements in audio processing equipment cause some radio and
        television stations to replace equipment before the end of its useful
        life; and

      * We believe that our product depth, technical superiority, and strong
        distribution channels have positioned us to increase our market share,
        especially in burgeoning international markets where growth is being
        spurred by increased radio station usage and the issuance of new radio
        licenses;

      Develop New Products and Acquire Additional Product Lines.    We are
exploring and developing new products, such as our Opticodec line of digital
encoders and decoders which gives us our first Digital Transmission System for
use over the Internet, as well as Integrated Services Digital Network (ISDN),
ATM and Frame Relay phone lines with its TCP/IP address ability.  We devoted
approximately $1.4 million to research and development in each of 2002 and 2003
primarily related to Opticedec products.  We intend to continue in the future to
devote a significant percentage of our revenue to research and development. In
addition, we intend to make strategic acquisitions of additional product lines
that are adaptable and complementary to our existing products.  For instance, we
acquired the assets of Dialog4 System Engineering, GmbH on January 18, 2002.
Prior to the acquisition, Dialog4 was our supplier for our Codec product line,
for the purpose of expanding our ability to sell and market our Codec line of
products.

     Increase Penetration in Emerging Markets.    We believe that the emergence
of rich multimedia capabilities, such as streaming audio and video, has
significantly enhanced the effectiveness of the Web as a global mass
communications medium and has accelerated the adoption of corporate intranets as
a means to improve communications within enterprises.  These enhanced multimedia
capabilities, combined with the unique interactive properties of the Internet,
are attracting a large and expanding audience and an increasing breadth and
depth of content and online commercial applications.  As the Web continues to
evolve as a mass communications medium, we believe that certain types of content
currently delivered through traditional media, such as radio and television,
increasingly will be delivered over the Internet.  We believe that we already
have many of the solutions for the audio quality issues being presented by these
new formats and delivery systems, and we intend to leverage our technologies in
the rapidly growing markets of digital audio broadcasting (DAB), digital
television (DTV), cable television and Internet-related audio delivery including
our Optimod-PC.

                                        4
<PAGE>
PRINCIPAL PRODUCTS

      Our CRL division manufactures and markets audio processing equipment,
primarily using analog technology, under the CRL, Millennium, TVS and Amigo
brand names. Our Orban division also manufactures and markets audio processing
equipment, but primarily using digital technology, under the Orban, Optimod,
Audicy and Opticodec brand names. The combined product line can be separated
into four different series or product families: FM Series, AM Series, TV Series,
and other audio post-production workstations.

      In 2003, our Orban division, which includes our office in Germany,
accounted for 95% of net sales while our CRL division accounted for the
remaining 5%.  In 2002, our Orban division including the German office accounted
for 93% of net sales and our CRL division accounted for the remaining 7%.

THE FM SERIES OF PRODUCTS

      Optimod-FM 8400.  The Optimod-FM 8400 is our "flagship" digital audio
processor introduced in the summer of 2000. It is based on Digital Signal
Processing (DSP) technology that is five times more powerful than that of its
predecessor, the Optimod-FM 8200 Signature Series. It is easier to use than
previous processors, having a number of preset configurations which customize
sound processing for specific formats and target audiences. It can be used for
either classical/jazz formats or for popular music/talk formats, depending on
the settings. It permits customized control of compressor threshold,
equalization, balance control, attack rate and multiband clipping for users who
do not wish to use the factory presets. It includes a DSP-based stereo encoder
and composite processor, target zone gating Audio Gain Controller (AGC), 2 and 5
band compressor, multi-band limiter and graphic equalizer. Two different types
of stereo enhancement are standard, and it can be operated in either stereo or
mono mode. It is compatible with industry standards.

      Optimod-FM 8300. The 8300 was introduced in the spring of 2003.  It is the
Company's mid-priced digital-FM processor, replacing the Optimod-FM 8200
Signature Series in our product line. The 8300 sets a new standard for audio
quality at its price point. It uses a significant amount of technology first
developed for the flagship 8400 product, including window-gated dual-band AGC, a
versatile equalization section, an "intelligent" clipper distortion controller,
our patented "Half-Cosine Interpolation" composite limiter, and our patented ITU
multiplex power controller, which is important for customers in some European
countries. The 8300 will run all 8400 "low latency" presets, allowing presets to
be developed on the 8400 and ported to the 8300 via the 8300's included PC
Remote software.  The 8300 is the first of the Company's products to use a new
modular control microprocessor platform, based on a 100 MHz 586-class
microprocessor and offering built-in Ethernet networking. The Company expects to
lower the cost of manufacturing and development by applying this new modular
platform its new products.

      Other Optimod Processors.  Our Orban division also produces other
processors with fewer features at lower costs. The Optimod-FM 8200 Signature
Series uses digital technology and has factory presets but can be customized for
optimum sound. It also permits tailoring a signal for loudness, clarity,
brightness and "punch" as required, but at lower cost. The Optimod-FM 2200 is
based on technology in the Optimod-FM 8200 and offers the benefits of digital
processing to stations with a modest budget. Other Optimod-FM products include
the 8218, a stand-alone digital FM stereo encoder, and the 8200ST which is an
adjustable compression studio chassis.

                                        5
<PAGE>
      CRL Amigo-FM.  The CRL Amigo-FM Audio Processor is an integrated "one box"
processing system for small to mid-size radio stations on a tight budget. It is
a single unit with a dual band AGC, a variable pre-emphasis multi-band limiter,
and digitally synthesized stereo generator.

      Other FM products.  Other CRL FM products include the Millennium, a
digital audio processor, Modulation Signature, a multi-band limiter, the SG-800A
Stereo Generator, and the SCA-300B Subcarrier Generator. In addition, Orban
offers the 222A, which is a stereo spatial enhancer.


THE AM SERIES OF PRODUCTS

      Optimod-AM 9200.  The Optimod-AM 9200 is our top-of-the-line digital audio
processor for monophonic AM radio stations, which enables the user to maximize
the sound quality available within the limitations of the AM channel.

      Optimod-HF 9200.  The Optimod-HF 9200 is a complete digital audio
processor designed for the demanding requirements of short-wave broadcasting and
"all-talk" AM radio stations that are experiencing nighttime interference
problems.

      Optimod-AM 9100B2.  The Optimod-AM 9100B2 is a complete audio processor
with a six-band limiter and distortion-canceling clipper for stereo AM radio
stations.

      CRL Amigo-AM.  The Amigo AM Audio Processor is a complete stereo audio
processing system, including a dual band AGC, triband limiter, and NRSC
(National Radio Systems Committee) output filtering. It is designed for small to
mid-size radio stations on a tight budget.

      Other AM Products.  Our CRL division also at a lower price point offers
the Amigo Talk, Amigo HF, AGC-400 Automatic Gain Controller, the SEC-400
Multi-Band Compressor/Equalizer, the PMC-450 Limiter and the AM-4 Monaural Audio
Processing System.


TELEVISION PRODUCTS

      Optimod-TV 6200.  The Optimod-TV 6200 is our top-of-the-line digital audio
processor for two-channel (left and right audio channels) digital television
transmissions (DTV). It provides two-band and five-band Optimod processing
structures and is compatible with all digital television applications, including
conventional land-based, cable or satellite distribution of mono, two-channel or
Dolby Surround encoded programs.

      Optimod-TV 8282.  The Optimod-TV 8282 is a digital audio processor
designed for analog television audio, whether mono, stereo or dual-language, and
is compatible with all monophonic and stereo broadcast systems.

      Other Optimod-TV Products.  We also offer the Optimod-TV 8182A which is an
analog audio processor for both stereo and monophonic analog television; the
Optimod-TV 8185A, a BTSC television stereo generator; the Optimod-TV 8182A
Secondary Audio Program (SAP) Generator which is primarily designed for public
second language use; the Optimod-TV 8185A PRO Generator (Professional channel
for non-public use); and the 275A Automatic Stereo Synthesizer which improves
the sound of monophonic programs when heard on stereo or surround television
systems.

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      CRL TVS Processors.  Our CRL division offers audio processing products for
television, including the TVS-3001, a top-of-the-line stereo television
processing system designed with surround sound compatibility; the TVS-3003, a
digitally synthesized stereo TV generator; the TVS-3004, a Professional Channel
(PRO) digitally synthesized subcarrier generator; and the TVS-3005, a digitally
synthesized subcarrier generator for a secondary audio program (SAP) channel.

      CRL Amigo-TV.  CRL Amigo-TV is a complete audio processing solution for a
variety of monophonic television applications.


      Avocet Pro-Line 102A.  The Avocet Pro-Line 102A is designed for internal
foldback and data transmission applications. Its single rack space design
enables secure mounting in mobile broadcast facilities.

      Avocet TV-2.  The Avocet TV-2 is a modular receiver capable of
incorporating Main SAP and/or Pro audio. Its SAP channel incorporates full dbx
decoding for the most accurate and clearest audio available. It enables the user
to receive or monitor production-quality audio for many applications, including
feeding SAP channel to distribute promotional spots to radio stations and
feeding translators and repeaters.

      Avocet AV100.  The Avocet AV100 television audio receiver features
high-quality audio with professional specifications and balanced SAP and Main
channel outputs. It can also be used for monitoring the Emergency Alert System,
recording programming off-air, sending news promotionals to radio stations and
rebroadcasting to translators.

OTHER PRODUCTS

      Optimod 6200S.  The Optimod 6200S is our top-of-the-line digital audio
processor for Internet Webcasters.

      Optimod-DAB 6200.  The Optimod-DAB 6200 is the first audio processor
designed specifically for digital audio broadcasting (DAB).

      Audicy.  Orban manufactures and sells digital audio production and video
post-production workstations under the Audicy brand name. The workstations
feature a simple set of controls and other features designed to reduce customer
training costs.

      Opticodec.  We announced the introduction of a new line of codecs in
October 2000, which are being sold under the Opticodec brand name. The term
"codec" is derived from the words "enCOde" and "DECode" and represents a
technology utilized in the transfer of digital data. Our Opticodec line of
products will allow our customers to send high-quality digital audio over the
Internet, computer networks and special Integrated Services Digital Network
(ISDN) telephone lines.

      Opticodec-PC.  In March 2004, we announced Opticodec-PC. This is the first
product that allows netcasters to stream audio encoded with the aacPlus(R)
codec, which the Company licensed from its creator, Coding Technologies Inc.
aacPlus is generally acknowledged as the highest quality codec for low bit
rates. Thanks to aacPlus technology, Opticodec-PC offers entertainment-quality
streaming in stereo at 32 kilobits per second, permitting audiences on dial-up
Internet connections to enjoy high-quality streaming audio for the first time,
while greatly reducing bandwidth costs for high-volume netcasters. Opticodec-PC
comes in two versions. The professional "PE" version is bundled with the
Company's Optimod-PC audio card, and supports multiple streams. The consumer
"LE" version will work with any Windows sound card, but only supports one stream
and is limited to bit rates of 32 kilobits per second and below.

                                        7
<PAGE>
      Other.  Our other products include stereo and monophonic gain controllers,
stereo spatial enhancers, test and analysis tools, studio chassis, and other
products related to our audio processing equipment.

                                        8
<PAGE>
MARKETING AND CUSTOMERS

      We sell our products to AM and FM radio stations and television stations
and Internet broadcasters around the world.  According to the FCC, there were
approximately 13,500 radio stations and approximately 4,500 television stations
licensed in the United States as of December 30, 2003.  The Information
Resource Center of the National Association of Broadcasters, using data compiled
by the Central Intelligence Agency, calculated the number of radio stations and
television stations worldwide, as of January 2003, to be over 48,400 and over
19,200, respectively. Stereo broadcasting in both radio and television requires
audio processing equipment.  Based on replacement equipment orders, we estimate
that the average useful life of audio processing equipment is less than five
years, and improvements in audio processing equipment cause some stations to
replace equipment before the end of its useful life.

      Sales of our products are conducted primarily through wholesale
distributors and dealers.  Most distributors of our products are also
distributors for other products used by radio and television stations. None of
our distributors solely distributes our products.

      In recent years, the radio and television industry in the United States
has experienced a great deal of consolidation of ownership.  As a result,
several corporations each now own a substantial number of radio and television
stations.  These corporations are the largest purchasers of our audio processing
and post-production equipment. In 2003, one of our largest customers, Harris
Corporation, accounted for approximately 20% of net sales. In 2002, the same
customer accounted for approximately 14% of net sales. Another one of our
largest customers, Broadcast Supply Worldwide accounted for just over 9% of our
net sales for 2003 representing a decrease of 1% over 2002. Harris Corporation
and Broadcast Supply Worldwide are suppliers and distributors of broadcast
equipment. We rely to a large extent on replacement orders placed by existing
customers. In 2003 our domestic customers account for approximately 37% of our
sales revenues while foreign customers account for the other 63%. In 2002 our
domestic customers accounted for approximately 42% while our foreign customers
accounted for approximately 58%. Our dependence on a small number of relatively
large customers increases the magnitude of fluctuations in operating results
particularly on a period to period, or period over period, comparison basis.

COMPETITION

      The market for broadcast transmission audio processing equipment is only
marginally competitive, primarily because it is a mature market that is not
characterized by a large amount of growth.  We compete with a limited number of
other manufacturers of audio processing equipment.  However, we cannot state
with any precision our relative standing within the industry.

      We concentrate on the market opportunities that management believes are
compatible with our resources, overall technological capabilities and
objectives.  The principal competitive factors in our business include
cost-effectiveness, product quality and reliability, technological capabilities,
service and financing for research and development.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

      Our success and ability to compete is dependent in part upon our ability
to protect and maintain our proprietary rights to our intellectual property. We
rely on a combination of patent, trademark and copyright laws and restrictions
on disclosure to establish and protect our intellectual property.

      We have pursued registration of our key patents and trademarks in the
United States and overseas.  We own several U.S. registered trademarks including
Orban, Optimod, Audicy, Dynafex,

                                        9
<PAGE>
CRL, CRL Systems and Millennium and have filed registrations for these marks in
Canada, Japan, India, Brazil, Taiwan, Australia and certain European countries.

      Since our inception, we have been granted a number of patents, many of
which have expired.  As of March 30, 2004, we hold the following U.S. patents
which we deem to be of material importance to our competitive position within
our industry:

     * United States Patent No. 4,837,824, entitled "Stereophonic Image
          Widening Circuit"
          Grant Date: June 6, 1989

     * United States Patent No. 5,050,217, entitled "Dynamic Noise Reduction
          and Spectral Restoration System"
          Grant Date: September 17, 1991

     * United States Patent No. 5,444,788, entitled "Audio Compressor
          Combining Feedback and Feedforward Sidechain Processing"
          Grant Date: August 22, 1995

     * United States Patent No. 5,737,434, entitled "Multi-Band Audio
          Compressor with Look-Ahead Clipper"
          Grant Date: April 7, 1998

     * United States Patent No. 6,337,999, entitled "Oversampled Differential
          Clipper"
          Grant Date: January 8, 2002

      Patents issued prior to 1985 have a 17 year term.  Patents issued after
1985 generally have a term of 20 years from the date on which the application
for the patent was filed in the United States or, in special cases, from the
date an earlier related application was filed.  Under U.S. law, the right
conferred by the patent grant is the right to exclude others from making, using,
offering for sale or selling the invention in the United States or importing the
invention into the United States.  What is granted is not the right to make,
use, offer for sale, sell or import, but the right to exclude others from
making, using, offering for sale, selling or importing the invention.  Once a
patent is issued, it is up to the patentee to enforce the patent.  We cannot
guarantee that we will discover any or all infringements of our patent rights.

      We generally enter into confidentiality, license and non-disclosure
agreements with our employees, licensees and outside consultants that seek to
limit the use and distribution of our proprietary materials.  The royalty income
that we receive under existing license agreements is not material.

VENDORS

      We purchase raw materials from various vendors.  Currently, we can obtain
the component parts necessary for the manufacture of our products and equipment
from a variety of sources.  Furthermore, no single vendor sells us more than 10%
of our total raw material purchases.  Nevertheless, as technology improves,
certain component parts may become obsolete and our vendors may discontinue
their production of such parts.  If this occurs, we may not be able to obtain
these necessary component parts from alternative sources.  As a result, we may
be forced to design around these parts or make a one time lifetime purchase of
discontinued parts so that we are able to continue producing our products and
equipment.

                                       10
<PAGE>
EMPLOYEES

      As of March 30, 2004 we had approximately 81 full-time employees.  Our CRL
division, located in Tempe, Arizona employs approximately 10 persons.  Our Orban
division, located in San Leandro, California employs approximately 65 persons.
Our employees are not represented by a labor union.  We consider our relations
with our employees to be good. Our Orban Europe office located in Ludwigsburg,
Germany employs approximately 6 persons.

RECENT EVENTS

Harman Debt

      Management for some time has been negotiating with Harman Acquisition
Corp., a wholly owned subsidiary of Harman International Industries, Inc., with
respect to restructuring the existing debt of the Company to Harman of
$8,482,000 in principal at December 31, 2003 is outstanding and bears interest
of 12% per annum.  If such a restructuring occurs under the terms presently
being discussed, the Company will need to make a principal payment of $1,000,000
(which can be made in installments), following which the interest rate on the
unpaid balances will be reduced to 6% per annum retroactive to April 1, 2003.
$3,500,000 of the unpaid balance will be converted into 19% of the common stock
of the Company, and the remaining unpaid balance will be payable over five years
in accordance with a payment schedule.  No agreement has yet been entered into
with Harman, and if no agreement is reached, the principal balance of $8,482,000
plus interest at the rate of 12% per annum will continue to be payable on
demand.  There is no assurance that the Company can reach a final agreement with
Harman for restructuring of the debt, nor that the agreement, if entered into,
will contain the same terms presently being discussed. As of December 31, 2003,
we are in arrears on interest installments on the Harman obligation in an
aggregate amount of $698,984 (at a rate of 12% per annum).


Dialog4

      The Company still owes Dialog4 approximately $597,000, which was payable
$37,500 monthly plus interest, for the purchase of the Dialog4 assets and we
still need to register the 1,250,000 shares issued to Dialog4 for the purchase
of the assets. The Company has not been making payments since August 2002 due to
disputes with Solectron and other companies that have claims against Dialog4
that pre-date our acquisition of Dialgo4's assets, but for which we may have
liability under German Law. The company made an unsuccessful effort to negotiate
with the Dialog4's creditors to assume some of Dialog4's liabilities in lieu of
making payments directly to Dialog4. Dialog4 has since given us notice of
default for non-payment  and has accelerated all amounts due.  On February 14,
2003, Dialog4 demanded the Company register the 1,250,000 shares issued to
Dialog4 for the purchase of the assets.

      On April 29, 2003, the Company was notified that Dialog4 filed a demand
for arbitration in Germany. On June 30, 2003, we gave notice of various claims
pertaining the representations and warranties made by Dialog4 in the Asset Sale
and Purchase Agreement. The Company then filed a formal statement of defense
along with counterclaims against Dialog4 on August 25, 2003, within the time
limits as by the Arbiter. Dailog4 filed its response on October 16, 2003. The
Company submitted a response on December 1, 2003. Dialog4 submitted a further
response on January 12, 2004, and amended its original

                                      11
<PAGE>
demand for arbitration with additional claims. On February 17, 2004, the Company
filed a response. There is no assurance that the Company can achieve a
satisfactory settlement with Dialog4.  If we are unable to do so, we will need
to satisfy or settle the demands of Dialog4 for payment under the original Asset
Sale and Purchase Agreement.  The Company believes it has defenses and claims
against Dialog4 arising from the asset sale.  The acceleration of indebtedness
by Dialog4 constitutes a default under the existing credit agreements between
the Company and Harman International, Inc. and would continue to constitute a
default even if our recent agreement is finalized with Harman relating to the
restructuring of the $7.9 million in notes that we currently owe Harman.

      We are still in the process of integrating the operations of our most
recently acquired operations. Once this integration is complete, we
expect to begin to benefit from cost savings produced by combined research and
development, marketing, sales and administration, manufacturing efficiencies and
cross-selling opportunities.  Our acquisition of the Dialog4 product line has
led to the establishment of our new Orban Europe division offices in
Ludwigsburg, Germany.  We continue to work through the challenge of integrating
Dialog4 as well as the challenge of overcoming obstacles produced as a result of
different corporate cultures, a difficult legal system and different accounting
and reporting regulations. We will also face new risks arising from foreign
currency fluctuations.

Solectron

       On August 9, 2002, the Company agreed to purchase all existing inventory
of parts related to its Sountainer product from Solectron GmbH for a total price
of $829,328, payable in 24 equal monthly installments including interest.
Solectron had purchased the inventory pursuant to an agreement with Dialog4
approximately two years prior to the purchase of the assets of Dialog4 by the
Company.  The price was equal to the amount paid by Solectron for the inventory,
which the Company expects to realize from future sales of that inventory.  The
agreement settled a dispute between the Company and Solectron in which Solectron
claimed the Company became liable for the obligation of Dialog4 to purchase the
inventory when the Company acquired the assets of Dialog4.  The Company
maintains it did not undertake the obligation of Dialog4, but to settle the
dispute, agreed to purchase the inventory, which it will use in the manufacture
of Sountainer products.  We currently owe Solectron GmbH approximately $510,000
as of December 31, 2003 and $649,000 at December 31 ,2002. On January 20, 2004
we were able to renegotiate the terms to pay  to make monthly installments of
principal and interest in the amount of $25,000. The final installment will be
due October 15, 2005 in the amount of $15,681. The company is current with
the existing payment plan. As per the new payment terms the Company will be able
to reclassify $234,139 as long term debt in January 2004. As of December 31,
2003 the company has paid $214,211 in principal and $50,012 in interest. Mr.
Brentlinger has also signed a personal guarantee under the revised Settlement
Agreement. The Company further agreed to indemnify Mr. Brentlinger should he be
required to make any payment under this guarantee. An amount of $233,000 is
reported in other assets pending delivery of that amount of inventory by
Solectron.


ITEM 2.  DESCRIPTION OF PROPERTY

     We leased facilities at 1330 W. Auto Drive, Tempe, AZ, from Formosa
International Systems Company, Inc. dba Ever Perfect Systems for a term ending
December 31, 2005, with a rent of $24,500 per month, payable $13,500 in cash and
$11,000 in CRL common stock valued at a 30 day closing average "price"of the
common stock on the market for the preceding month. The payments in common stock
would only be payable when and if the landlord vacated the portion of the
premises he was then occupying. This location housed our executive,
administrative, sales, manufacturing and research staff.

                                       12
<PAGE>
No formal lease was ever signed. In November 2003, a dispute arose between the
landlord and us, causing us to leave the premises and file a legal claim. (see
Item 3, Legal Proceedings).

     On November 26, 2003, the Company entered into a lease with a three year
option to purchase the manufacturing and office facilities at 1302 W. Drivers
Way, Tempe, AZ from Sheena 4626 LLC. The term of the lease is for 60 months
commencing on December 1, 2003. Pending the landlord's ability to vacate the
premises, we agreed to lease 6,285 square feet for the first month (at
approximately $4,399) and 8,067 square feet for the second month (at
approximately $5,646). We will lease the entire 13,008 square feet (at
approximately $9,105 per month) for months 3 though 12 of the term.
Subsequently, the monthly payments will increase at a rate of 3 % annually. The
option to purchase will be for $1,275,000 after the first 12 months of
occupancy, increasing $25,000 each year for the subsequent years. This new Tempe
location houses our executive, administrative, sales, manufacturing and research
staff.

      We lease 33,777 square feet of the manufacturing and office facilities
occupied by our Orban division in San Leandro, California.  The term of the
lease is for 60 months commencing on January 1, 2002.  Base rent was
approximately $27,022 per month during 2002, and increases at a rate of 4%
annually.

      On January 18, 2002 we assumed the office facility lease in Ludwigsburg,
Germany when we purchased the assets of Dialgo4 Systems Engineering, GmbH. It is
a month-to-month lease for approximately 750 square feet for $2,700 a month.



ITEM 3.  LEGAL PROCEEDINGS.

Dialog4

       On April 29, 2003, the Company was notified that Dialog4 filed a demand
for arbitration in Germany. On June 30, 2003, we gave notice of various claims
pertaining the representations and warranties made by Dialog4 in the Asset Sale
and Purchase Agreement. The Company then filed a formal statement of defense
along with counterclaims against Dialog4 on August 25, 2003, within the time
limits as by the Arbiter. Dailog4 filed its response on October 16, 2003. The
Company submitted a response on December 1, 2003. Dialog4 submitted a further
response on January 12, 2004, and amended its original demand for arbitration
with additional claims. On February 17, 2004, the Company filed a response.
There is no assurance that the Company can achieve a satisfactory settlement
with Dialog4.  If we are unable to do so, we will need to satisfy or settle the
demands of Dialog4 for payment under the original Asset Sale and Purchase
Agreement. The Company believes it has defenses and claims against Dialog4
arising from the asset sale. The acceleration of indebtedness by Dialog4
constitutes a default under the existing credit agreements between the Company
and Harman International, Inc. and would continue to constitute a default even
if our recent agreement is finalized with Harman relating to the restructuring
of the $7.9 million in notes that we currently owe Harman.

                                       13
<PAGE>
Formosa International Systems Co., Inc.,

      The Company leased space at 1330 West Auto Drive, Tempe, Arizona (the
"Building") beginning January 2, 2003.  The owner of the Building, Formosa
International Systems Co., Inc., was also a tenant in the Building.  An informal
lease was executed which provided that the owner would vacate the Building upon
request and that the Company would pay rent partly in cash and partly in stock
of the Company (subject to compliance with Securities Laws). The Company made
all payments of the cash portion of the rent, but refused to pay the stock
portion until the owner vacated the Building so the Company could use all of the
space it was renting.  The owner refused to vacate.  In addition, the owner
requested the Company to execute a subordination agreement with its lender on
terms the Company found unacceptable and the Company refused to execute it
without modifications. The owner then locked out the Company for nonpayment of
the stock portion of the rent on November 10, 2003. The Company immediately
sought and obtained a Temporary Restraining Order ("TRO") from the Superior
Court of Maricopa County, Arizona requiring the owner to allow the Company
continued use of the Building, and the Company moved back into the Building that
day.

      The Company declared the lockout to be a default under the lease and
vacated the Building in late November, 2003, entering into the present lease for
a building located at 1302 West Drivers Way, Tempe, Arizona. The Company
thereafter amended its complaint in the Superior Court alleging breach of lease
and constructive eviction, seeking from the owner of the Building its actual
damages, which it alleges to be at least $100,000.  The owner of the Building
has counterclaimed for breach of lease, claiming damages of $177,500, and for
the allegedly wrongful conduct of the Company in refusing to execute the
subordination agreement requested by the owner, claiming unspecified damages.
The Company has denied the allegations of the counterclaim and the matter is
pending.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.

                                       14
<PAGE>
                                     PART II

ITEM  5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Our common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers (NASD) under the symbol "CRLI."

     The following table sets forth the quarterly high and low bid prices for
our common stock as reported by the NASD's OTC Bulletin Board.  The prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.

          CALENDER QUARTER               High       Low
          ----------------               -----      -----
          2002
            First Quarter                $1.33      $0.69
            Second Quarter                2.29       1.01
            Third Quarter                 1.40       0.55
            Fourth Quarter                1.02       0.50
          2003
            First Quarter                 0.72       0.31
            Second Quarter                0.51       0.34
            Third Quarter                 0.65       0.30
            Fourth Quarter                0.88       0.47


     As of March 30, 2004, there were 4,172,533 shares of common stock
outstanding held by approximately 285 shareholders of record.  We have not paid
any cash dividends on our common stock and pursuant to the terms of our loan
agreement with Harman, we cannot pay cash dividends while our debt to Harman
remains outstanding.


RECENT SALES OF UNREGISTERED SECURITIES

     Set forth below is information concerning sales of our common stock (or
transactions deemed to be sales) during the three year period ended December 31,
2003 that were not registered under the Securities Act of 1933, as amended (the
"Act").  All such securities are restricted securities and the certificates bear
restrictive legends.

     On January 18, 2002, our wholly owned subsidiary, CRL Systems, Inc. doing
business as Orban, Inc., acquired the assets of Dialog4 System Engineering GmbH,
a worldwide leader in ISO/MPEG, audio, ISDN, satellite transmission, networking
and storage.  Orban/CRL purchased the assets of Dialog4 pursuant to an Asset
Sale and Purchase Agreement for $2 million, comprised of 1,250,000 shares of our
common stock, valued at $1.00 per share, and $750,000 cash.  In connection with
this transaction, we relied on the exemption from registration under Section
4(2) of the Act.

     On January 24, 2002 the Company issued to Malibu Holdings, LLC.  50,000
shares of restricted common stock at 1.00 per share in exchange for $50,000 of
consulting services rendered during the prior year.

     On November 4, 2002  the Company issued 18,750 shares of restricted common
stock to Ellen Brous at 1.00 per share, 18,750 shares of restricted common stock
to Pipia Cohen & Associates and 12,500 shares of restricted common stock to
Debra Fiakas when we  engaged "HD Brous & Co., Inc." to advise and assist us in
capital raising efforts.

                                       15
<PAGE>
     On each of November 12, 2002, and December 9, 2002 the Company issued 5,016
shares of restricted common stock at $0.67 and $0.92 respectively, in connection
with the employment contract of Phil T. Zeni Sr., our Executive Vice President,
Chief Operating Officer and Director.

     During the year in 2003 the Company issued 172,670 shares of restricted
common stock in connection with the employment contract of Phil T. Zeni Sr., our
Executive Vice President, Chief Operating Officer and Director.


     On August 18, 2003, the Company issued 13,500 shares of restricted common
stock to Robert McMartin, our Vice President and Chief Financial Officer as
consideration for making two loans to the Company in 2002.

     On October 22, 2003, the Company issued 200,000 shares of restricted common
stock to Phillip T. Zeni, Sr. our Executive Vice President, Chief Operating
Officer and Director as consideration for the May 19, 2003 loan he made to the
company.

                                       16
<PAGE>
ITEM  6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

      The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
accompanying notes included elsewhere in this report.  This discussion contains
statements about future events, expectations, risks and uncertainties that
constitute forward-looking statements, as do discussions elsewhere in this
report.  Forward-looking statements are based on management's beliefs,
assumptions and expectations of our future economic performance, taking into
account the information currently available to management.  These statements are
not statements of historical fact.  Forward-looking statements involve risks and
uncertainties that may cause actual results, performance or financial condition
to differ materially from the expectations of future results, performance or
financial condition we express or imply in any forward-looking statements.  The
words "believe," "may," "will," "should," "anticipate," "estimate," "expect,"
"intend," "objective," "seek," "strive" or similar words, or the negative of
these words, identify forward-looking statements. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including, but not limited to, those described below
under this Item 6, "Management's Discussion and Analysis or Plan of Operation -
Risk Factors."  We qualify any forward-looking statements entirely by these
cautionary factors.

OVERVIEW

      We develop, manufacture and market high-quality electronic audio
processing, transmission encoding and noise reduction equipment for the
worldwide radio, television, cable, Internet and professional audio markets. In
recent periods, we have acquired the assets of other companies within our
industry or in related industries into which we desire to expand.  On May 31,
2000, we acquired the assets of Orban, Inc., a producer of audio editing and
processing equipment.  On May 31, 2001, we acquired the assets of Avocet
Instruments, Inc., a supplier of quality audio receivers and coders for the
television and post-production industry.  On January 18, 2002, we acquired the
assets of Dialog4 System Engineering GmbH, a worldwide leader in ISO/MPEG,
audio, ISDN, satellite transmission, networking and storage.

      We are still in the process of integrating the operations.  Once this
integration is complete, we expect to begin to benefit from cost savings
produced by combined research and development, marketing, sales and
administration, manufacturing efficiencies and cross-selling opportunities.  Our
acquisition of the Dialog4 product line has led to the establishment of our new
Orban Europe division offices in Ludwigsburg, Germany.  We continue to work
through the challenge of integrating Dialog4 as well as the challenge of
overcoming obstacles produced as a result of different corporate cultures, a
difficult legal system and different accounting and reporting regulations. We
will also face new risks arising from foreign currency fluctuations.

      The events of September 11, 2001, have had a significant impact on the
market for audio processing equipment.  We have experienced a reduction in
orders for new audio equipment from many radio and television stations. We
believe this reduction is due in part to the decrease in advertising revenue
realized by these stations.  The market for audio processing equipment has been
slowly showing increased demand throughout 2003, effectively beginning to
reverse the trend caused by September 11, 2001.

      We believe the increased consolidation within the radio and television
industries will provide some potential opportunities for our Company.  For
example, we believe that as larger radio and

                                       17
<PAGE>
television stations purchase smaller stations, orders for new equipment will
increase in order to upgrade these smaller stations which would otherwise have
put off purchases of such upgraded equipment.


      The Company has been enhancing its core product line with the introduction
of its Optimod-FM 8300 product announced in April 2003. It is the Company's
mid-priced digital-FM processor, replacing the 8200 Signature Series in our
product line. The 8300 sets a new standard for audio quality at its price point.
It uses a significant amount of technology first developed for the flagship
Optimod-FM 8400 product, including window-gated dual-band AGC, a versatile
equalization section, an "intelligent" clipper distortion controller, our
patented "Half-Cosine Interpolation" composite limiter, and our patented ITU
multiplex power controller, which is important for customers in some European
countries. The 8300 will run all 8400 "low latency" presets, allowing presets to
be developed on the 8400 and ported to the 8300 via the 8300's included PC
Remote software. The 8300 is the first of the Company's products to use a new
modular control microprocessor platform, based on a 100 MHz 586-class
microprocessor and offering built-in Ethernet networking. The Company expects to
lower the cost of manufacturing and development by applying this new module to
multiple new products.

     We have expanded into the high-quality codec market in order to complement
our existing product line.  The term "codec" is derived from the words "enCOde"
and "DECode" and represents a technology utilized in the transfer of digital
data.  The radio and television broadcast industries use codec technology to
transmit voice and music from studio to studio, or from a remote broadcast
location to a studio, using Integrated Services Digital Network (ISDN) telephone
lines, the Internet, computer networks and satellite links. Our acquisition of
the assets of Dialog4 System Engineering GmbH on January 18, 2002, has
accelerated our expansion into the codec market by immediately increasing the
existing customer base for our Opticodec line of products.  At the same time,
this acquisition increased the existing customer base for all of our other
products.  The market for codec technology is rapidly developing and the demand
for information over an ever-crowded spectrum is increasing. We are hopeful that
our Opticodec product line will eventually add 20% to our net sales. At this
time, however, these products have had no material impact on our sales.

      In spring of 2001, we introduced the Optimod-PC which is designed for use
in digital audio broadcasting (DAB), Internet web/netcasting and recording
applications.  The Optimod-PC is a PCI sound card (designed to run on Windows
2000 and Windows XT) with on-board digital signal processing that is suitable
for both live streaming and on-demand programming.  Internet audio applications
are composed of two general categories: on-demand and streaming. The market for
audio streaming is currently hampered by uncertainty with respect to the payment
and allocation of proposed copyright royalty fees and questions concerning the
establishment of revenue-generating models. Nevertheless, the demand for
on-demand audio and web meetings is expected to increase as radio stations and
businesses alike increasingly utilize MPEG-1 Layer 3 (MP3) technology to reach
listeners with digital music and other audio content.

      In March 2004, we announced Opticodec-PC. This is the first product that
allows netcasters to stream audio encoded with the aacPlus(R) codec, which the
Company licensed from its creator, Coding Technologies Inc. aacPlus is generally
acknowledged as the highest quality codec for low bit rates. Thanks to aacPlus
technology, Opticodec-PC offers entertainment-quality streaming in stereo at 32
kilobits per second, permitting audiences on dial-up Internet connections to
enjoy high-quality streaming audio for the first time, while greatly reducing
bandwidth costs for high-volume netcasters.

      Opticodec-PC comes in two versions. The professional "PE" version is
bundled with the Company's Optimod-PC audio card, and supports multiple streams.
The consumer "LE" version will
                                       18
<PAGE>
work with any Windows sound card, but only supports one stream and is limited to
bit rates of 32 kilobits per second and below.

      In addition, our equipment sales may increase due to the Federal
Communications Commission approving a plan for U.S. radio and TV stations to
broadcast in digital by means of High Definition. We have introduced several
products geared to this market.

      We are hopeful that the growing Digital Television (DTV) market will
provide a new market for us in the coming years.  DTV has different meanings
depending on whether one is discussing production and post-production or
distribution and transmission.  With respect to distribution and transmission,
it means sending audio and video digitally to its destination. DTV is under
development around the world and is being phased in domestically with over 400
local television stations on the air and broadcasting digitally as of June 2002
and an additional 800 stations in the U.S. alone remaining to convert to DTV
format.

      Our Optimod 6200 is designed to meet what we believe is the primary need
of digital broadcasters (DAB, DTV and web/netcasters), specifically the delivery
of clean, crisp, consistent and comfortably-listenable sound that will enable
such broadcasters to attract listeners and compete in their respective markets.
Because the digital standards are still evolving, the 6200 was built to be
flexible and adaptive to future modifications in the industry.

      Despite the ongoing conversion to digital transmission systems, many
broadcasters, engineers and consultants continue to support analog technology,
and many of our competitors continue to build and sell analog broadcast
equipment.  We have not seen an increase in demand for our CRL line of products,
but we expect continued and stable demand for such products in 2004.


      We have reduced our net 2002 loss from $2,135,039 to $384,877 during 2003.
Despite this encouraging trend, our previous financial results have strained our
liquidity, causing us, in 2001 to renegotiate our $8.5 million loan agreement
with Harman.  Under the terms of our debt agreement with Harman International as
now in effect, Harman can demand at any time that we immediately pay in full the
outstanding balance of our debt. Should this happen, we would immediately be
forced to file for protection under Chapter 11 of the United States Bankruptcy
Code.  Our inability to pay the remaining $8.5 million in principal and $0.7
million in accrued interest to Harman should payment be demanded, our
difficulties in meeting our financing needs and our negative working capital
position have resulted in our independent public accountants adding a "going
concern" emphasis paragraph to their report on our financial statements by
including a statement that such factors raise substantial doubt about our
ability to continue as a going concern.

      In addition to our efforts to reduce costs and increase sales, we are
currently seeking sources of long-term financing.  However, the inclusion of a
going concern emphasis paragraph by our independent accountants generally makes
it significantly more difficult to obtain trade credit or additional capital
through public or private debt or equity financings. We have renewed our
engagement with HD Brous & Co., Inc. to advise and assist us in capital raising
efforts. We cannot offer any assurances that we will be able to attract
additional capital or that additional financing, if obtained, will be sufficient
to meet our current obligations.  If we cannot meet our current obligations, our
ability to continue as a going concern will be jeopardized.

      Management for some time has been negotiating with Harman Acquisition
Corp., a wholly owned subsidiary of Harman International Industries, Inc., with
respect to restructuring the existing debt of the Company to Harman of
$8,482,000 in principal at December 31, 2003 is outstanding and bears interest
of 12% per annum.  If such a restructuring occurs under the terms presently
being discussed, the

                                       19
<PAGE>
Company will need to make a principal payment of $1,000,000 (which can be made
in installments), following which the interest rate on the unpaid balances will
be reduced to 6% per annum retroactive to April 1, 2003.  $3,500,000 of the
unpaid balance will be converted into 19% of the common stock of the Company,
and the remaining unpaid balance will be payable over five years in accordance
with a payment schedule. No agreement has yet been entered into with Harman, and
if no agreement is reached, the principal balance of $8,482,000 plus interest at
the rate of 12% per annum will continue to be payable on demand.  There is no
assurance that the Company can reach a final agreement with Harman for
restructuring of the debt, nor that the agreement, if entered into, will contain
the same terms presently being discussed. As of December 31, 2003, we are in
arrears on interest installments on the Harman obligation in an aggregate amount
of $698,984 (at a rate of 12% per annum).


RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2002 the FASB issued SFAS 148 "Accounting for Stock Based
Compensation". This SFAS amends SFAS 123 and provides new guidance regarding the
transition should an entity change from the intrinsic value method to the fair
value method of accounting for employee stock based compensation cost.
Additional information is now required to be disclosed regarding such cost in
the financial statements of public companies.  The Company does not presently
plan to adopt fair value accounting for employee stock based compensation cost.

      Statement of Financial Accounting Standards No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, amends and
clarifies financial accounting and reporting for derivative instruments for
certain decisions made by the Financial Accounting Standards Board identified
during the implementation of Statement 133 and amends Statement 133 to clarify
the definition of a derivative. This statement is not expected to impact the
Company's financial reporting.

      In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). The requirements of
this statement apply to issuers' classification and measurement of freestanding
financial instruments, including those that comprise more than one option or
forward contract. SFAS 150 is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. Adoption of SFAS 150 did
not have any impact on the Company's results of operations or financial
position.

                                       20
<PAGE>
      In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which expands on the accounting
guidance of Statements No. 5, 57, and 107 and incorporates without change the
provisions of FASB Interpretation No. 34, which is being superseded.  This
Interpretation requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee.  Finally, guarantors are required to make significant new
disclosures, even if the likelihood of the guarantor making payments under the
guarantee is remote. Adoption of FIN 45 did not have any impact on the Company's
results of operations or financial position.

      In January 2003, the FASB issued Interpretation No 46 ("FIN 46"),
Consolidation of Variable interest Entities.  The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity and determine when the assets, liabilities, noncontrolling interests and
results of operations of a variable interest entity need to be included in a
company's consolidated financial statements.  A company that holds variable
interests in an entity will need to consolidate the entity if the company's
interest in the variable interest entity is such that the company will absorb a
majority of the variable interest entity's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur. The Company
has no interests in variable interest entities and FIN 46 did not have any
impact on the Company's results of operations or financial position.

      In December 2003, the FASB issued FIN 46R, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51," replacing FIN 46, of the same
title, that was issued in January 2003.  FIN 46R provides guidance on which
certain entities should be consolidated or the interests in those entities
should be disclosed by enterprises that do not control them through majority
voting interest.  Under FIN 46R, entities are required to be consolidated by
enterprises that lack majority voting interest when equity investors of those
entities have insignificant capital at risk or they lack voting rights, the
obligation to absorb expected losses, or the right to receive expected returns.
Entities identified with these characteristics are called variable interest
entities, or "VIEs," and the interests that enterprises have in these entities
are called variable interests.  These interests can derive from certain
guarantees, leases, loans or other arrangements that result in risks and rewards
that are disproportionate to the voting interests in the entities.

      The provisions of FIN 46R must be applied for VIEs created after January
31, 2003 and for variable interests in entities commonly referred to as "special
purpose entities."  For all other VIEs, implementation is required by March 31,
2004. The Company has no interest in variable interest entities. Our adoption of
FIN 46R did not have a material impact on our consolidated financial statements
or disclosures.

                                       21
<PAGE>

SALES TO MAJOR CUSTOMERS AND EXPORT SALES

      We sell our products primarily through wholesale distributors and dealers.
We recognize revenue generally upon shipment of products to customers.  In 2003,
one of our largest customers, Harris Corporation, accounted for approximately
20% of net sales.  In 2002, Harris accounted for approximately 14% of net sales.
Broadcast Supply Worldwide accounted for just over 9% of our net sales for 2003,
representing a decrease of 1% over 2002. Our dependence on a small number of
relatively large customers increases the magnitude of fluctuations in operating
results particularly on a period to period, or period over period, comparison
basis.

      International sales in 2003 and 2002 totaled $7,761,388 and $6,200,809,
respectively, or approximately 63% and 58%, respectively, our total sales during
those years.  Prior to our acquisition of the assets of Dialog4 System
Engineering GmbH on January 18, 2002, we required that all export sales be paid
in U.S. currency. After the acquisition was completed, we require that sales
from our German office be paid in either Euros or United States Dollars. All
other export sales are in U.S currency.

     Our export sales by region are as follows:

     Region                     2003       %           2002       %
     --------------------------------------------------------------
     Europe                  $3,783,060   49%        $3,191,977   51%
     Pacific Rim              2,511,406   33          1,629,428   26
     Latin and South America    344,713    4            532,844    9
     Canada and Mexico          798,980   10            656,169   11
     Other                      323,229    4            190,391    3
                             ----------  ----       ----------  ----
     Total                   $7,761,388  100%       $6,200,809  100%
                             ==========  ====       ==========  ====

      In recent years, the radio and television industry in the United States
has experienced a great deal of consolidation of ownership.  In the last five
years alone, four large corporations have acquired the vast majority of radio
stations in the United States.  This control gives these corporations
substantial ability to demand discounts from equipment distributors and
manufacturers.

      The Latin and South America market consists largely of privately owned
radio stations, and we do not foresee any changes in this trend.

      While radio ownership in the Western European market is predominantly
private, this market is largely mature and is not characterized by a large
amount of growth.  Conversely there is some potential growth in the Eastern
European market as more and more radio and TV stations become private and
commercialized however we can not predict the rate at which this market will
grow nor the size.

      The Indian market is beginning to implement private radio ownership, and
this market may become more substantial and present opportunities for us in the
future.  However, we cannot predict the rate at which this market will grow nor
the ultimate size of this market.

      Given the price sensitivity in the Asian markets (including China), we
expect that our analog products, as opposed to our digital products, will be
more suited to such markets.

                                       22
<PAGE>
RESULTS OF OPERATIONS

      The following table sets forth for the periods indicated certain summary
operating results:
                                                     Year Ended December 31,
                                                   ---------------------------
                                                       2003            2002
                                                   -----------      ----------
     Revenues:
       Net sales                                   $12,381,834     $10,772,593
       Other income (expense)                          (56,340)        455,649
                                                   -----------      ----------
         Total revenues                            $12,325,494     $11,228,242
                                                   ===========      ==========
     Gross profit on net sales                      $6,844,956      $4,866,086
     Gross profit margin                                    55%             45%

     Net cash provided by operating activities         221,434          20,561
     Net cash (used in) provided by
       investing activities                           (113,428)        648,983
     Net cash used in financing activities             (99,776)       (736,038)
     Net loss                                        $(384,877)    $(2,135,039)
     Net loss as a percent of net sales                     (3%)           (20%)
     Loss per share - basic                             $(0.10)         $(0.58)
     Loss per share - diluted                           $(0.10)         $(0.58)



For the year ending December 31, 2004, our principal working capital
requirements (assuming no demand of debt payment from Harman International, our
largest single creditor who holds our "due on demand' promissory note) will be
the payment of normal recurring operating costs and scheduled debt service
payments.  Management believes that the anticipated restructure will help us
meet these requirements from expected operating cash flows.

                                       23
<PAGE>
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

      Net Sales.  Net sales for the year ended December 31, 2003 were $12.4
million compared to $10.8 million in 2002, an increase of 15%.  The increase in
net sales was primarily attributable to a 44% increase in demand from one of our
largest customers along with an 18% increase in demand for our products in
Europe. Our Orban division reported net sales for years ended December 31, 2003
and 2002 of $11.8 million and $10.1 million, respectively. In 2003 and 2002, our
Orban division accounted for 95% and 93%, respectively, of our net sales while
our CRL division accounted for the remaining 5% and 7%, respectively. Included
in our Orban division is our Ludwigsburg Germany location, which reported net
sales of $0.7 million and $1.0 million for 2003 and 2002, respectively.

      Our CRL division reported net sales of $583,000 for the year ended
December 31, 2003 as compared to $703,000 in 2002, a decrease of 17%. This
decrease was the result of decreased demand for the CRL line of products, which
consist mostly of analog products.  We are uncertain whether this decreased
demand will continue, but generally, we expect continued stable demand across
the CRL product lines in 2004.

      Sales for the years ended December 31, 2003 and 2002 were conducted
primarily through wholesale distributors and dealers.  In 2003, one of our
largest customers, Harris Corporation, accounted for approximately 20% of net
sales, and in 2002, accounted for approximately 14% of net sales. Broadcast
Supply Worldwide accounted for just over 9% of our net sales for 2003,
representing an decrease of 1% over 2002.

      International sales for the years ended December 31, 2003 and 2002
totalled $7,761,388 and $6,200,809, respectively.  International sales
represented 63% of the total net sales for the year ended December 31, 2003, as
compared to 57% for the year ended December 31, 2002. One of the primary reasons
for the increase in international sales is primarily due to decrease in the US
dollar.

      Our introduction of new products during the year ended December 31, 2002
has had an impact of nine percent on our net sales for that period. and six
percent for the year ended December 31, 2003.  This is attributable to the
acquisition of our Dialog4 assets in January of 2002. Had we not included this
new product line in 2002 as part of our net sales our net sales would have
decreased by 25% instead of 18%.

      Gross Profit.  Gross profit for the year ended December 31, 2003 was 55%
compared to 45% for the same period in 2002, or $6.8 million in 2003 compared to
$4.9 million in 2002.  The increase was primarily attributable to increased
production caused by a increased demand for our products, coupled with our
ability to increase production runs and reduce costs associated with set up, and
labor. Contributing factors also include a percentage decrease in our variable
expenses as a result of larger quantity material purchases creating a modest
discount in the price. Another factor is due to an increase in the inventory
reserve by $168,000 booked for 2002 where as no additional reserve was required
for 2003. Gross profit for our Orban Europe location (Dialog4) was 47% and 58%
for the years ended December 31, 2002 and 2003, respectively.

      Selling, General and Administrative.  Total selling, general and
administrative expenses ("SG&A") in 2003 was $4.3 million, a decrease of 4% as
compared to the $4.5 million reported in 2002.  As a percentage of net sales,
SG&A decreased 7% to 35% for the year ended December 31, 2003 from 42% in 2002.
The decrease in total SG&A expense is due a decrease in executive salaries.

      Research and Development.  Research and development expense was $1.4
million in each of the years ended December 31, 2003 and 2002.  As a percentage
on net sales, research and development decreased 2%, from 13% of net sales in
2002 to 11% in 2003.
                                       24
<PAGE>
      Other Expense.  Other expense for the year ended December 31, 2003 was
$1,316,000, of which $1,018,000 represents interest expense to Harman
International Industries, Inc. in connection with the seller carry-back loan
that financed a portion of the purchase price that we paid for the Orban assets.
For the year ended December 31, 2002: other expense net of other income, was
$704,000. In 2002, we had other income of $352,000 from a gain on the sale of a
building in Tempe and $1,019,000 of interest expense to Harman International
Industries, Inc.  Total interest expense for 2003 was $1,260,000 as compared to
$1,160,000 for 2002, an increase of 9%. The Harman interest expense decreased by
2% from 2002.

      Net Loss.  In 2003, net loss decreased by $1,750,000 to $385,000, as
compared to a net loss of $2,135,000 in 2002.  The decrease is primarily a
result in increased sales and gross profit as discussed above.


LIQUIDITY AND CAPITAL RESOURCES

      We had negative net working capital of approximately $9.2 million at
December 31, 2003, and the ratio of current assets to current liabilities was
..26 to 1. At December 31, 2002, we had negative net working capital of
approximately $8.7 million and a current ratio of .27 to 1.  The decrease in
working capital is a result of our increased debt associated with the accrued
interest in arrears due Harman.

      The negative working capital primarily resulted from the conversion in
2001 to demand notes of the $3.5 million short-term note and the $5 million
long-term notes payable to Harman.

      Our substantial obligation to Harman may have important consequences for
us, including the following:

      * Our ability to continue as a going concern will depend in part on
        whether Harman demands payment on the $8.5 million debt, or any portion
        thereof;
      * A significant portion of our cash flow from operations will be dedicated
        to servicing our debt obligations and will not be available for other
        business purposes;
      * The terms and conditions of our indebtedness limit our flexibility in
        planning for and reacting to changes in our business, and in making
        strategic acquisitions;
      * Our ability to obtain additional financing in the future for working
        capital, capital expenditures and other purposes may be substantially
        impaired; and
      * Our substantial leverage may make us more vulnerable to economic
        downturns and competitive pressures.

      Our ability to meet our debt service obligations and reduce our total
indebtedness to Harman depends in part on our future operating performance. Our
future operating performance will depend on our ability to expand our business
operations by growing our core audio processing business, expanding our product
offerings and penetrating new and emerging markets, which we anticipate will
require additional financing.  In addition, our future operating performance
will depend on economic, competitive, regulatory and other factors affecting our
business that are largely beyond our control. If we are unable to expand our
business operations as planned, we may not be able to service our outstanding
indebtedness to Harman.

                                       25
<PAGE>
      In addition to our efforts to reduce costs and increase sales, we are
currently seeking sources of long-term financing.  However, the inclusion of a
going concern emphasis paragraph by our independent accountants generally makes
it significantly more difficult to obtain trade credit or additional capital
through public or private debt or equity financings. We have currently engaged
HD Brous & Co., Inc. to advise and assist us in capital raising efforts. We
cannot offer any assurances that we will be able to attract additional capital
or that additional financing, if obtained, will be sufficient to meet our
current obligations.  If we cannot meet our current obligations, our ability to
continue as a going concern will be jeopardized.

      On March 27, 2003, we entered into an agreement with Harman that will
allow a restructuring of the debt we owe Harman if the Company privately places
$1.5 million in common stock for cash consideration. The Company would then make
a $1 million cash principal payment on its debt to Harman. Harman would allow
the Company to retain the remaining cash raised by the sale of its common stock
in excess of the payment to Harman. Harman would agree to exchange $3.5 million
principal amount of the debt owed to Harman by the Company and its outstanding
warrant to purchase shares of CRL common stock, for a number of shares of CRL
common stock such that Harman would own 19% of the then-outstanding shares of
CRL common stock on a fully-diluted basis after giving effect to the private
placement of equity securities by CRL referred to above. The shares of CRL
common stock issued to Harman would be subject to (i) a registration rights
agreement with terms similar to the registration rights granted to Harman in the
warrant to be surrendered, including multiple demand rights, and (ii)
anti-dilution protection for issuances of equity securities following the
restructuring.

      Harman would exchange the remaining $3.382 million of debt plus accrued
interest for $1.2 million due from the Company into a single, senior note with
an interest fixed at 1.5% above the prime rate. Interest will be paid monthly.
Mandatory principal payments will also be required on the anniversary of
restructuring for the next five years at the rate of $250,000 per year for the
first two years, $500,000 per year for the following two years, and the balance
due at the balance due at the end of the five years. The transaction is
conditioned upon the $1,000,000 principal payment.

      On January 18, 2002, with Harman's consent, we acquired the assets of
Dialog4 System Engineering GmbH.  We purchased the assets of Dialog4 pursuant to
an Asset Sale and Purchase Agreement for $2 million, comprised of 1,250,000
shares of our common stock, valued at $1.00 per share, and $750,000 cash to be
paid at a later date either by us from our working capital or by our President
and Chief Executive Officer, Charles Jayson Brentlinger.  On April 8, 2002 we
executed an amendment to the Asset Sales and Purchase Agreement with Dialog4.
The amended agreement extends the term of our payment installments to $37,500
plus interest on the remaining principal balance at a rate of 10 percent per
annum.  The monthly installments of principal and interest are due and payable
on the twentieth day of each month commencing April 20, 2002.

      The Company still owes Dialog4 approximately $597,000, which was payable
$37,500 monthly plus interest, for the purchase of the Dialog4 assets and we
still need to register the 1,250,000 shares issued to Dialog4 for the purchase
of the assets. The Company has not been making payments since August 2002 due to
disputes with Solectron and other companies that have claims against Dialog4
that pre-date our acquisition of Dialgo4's assets, but for which we may have
liability under German Law. The company made an unsuccessful effort to negotiate
with the Dialog4's creditors to assume some of Dialog4's liabilities in lieu of
making payments directly to Dialog4. Dialog4 has since given us notice of
default for non-payment and has accelerated all amounts due.  On February 14,
2003, Dialog4 demanded the Company register the 1,250,000 shares issued to
Dialog4 for the purchase of the assets. On April 29, 2003, the Company and
Dialog4 entered formal Arbitral proceedings. We are currently in arbitration and
there is no assurance the company can achieve a satisfactory settlement with
Dialog4. (see Item 3 "Legal Proceedings" elsewhere in this Report).

                                       26
<PAGE>
      We owe Solectron GmbH approximately $504,000 as of December 31, 2003. This
obligation was a result of claims originating between Solectron GmbH and
Dialog4. We are currently making monthly installments of principal and interest
in the amount of $25,000. The final installment will be due October 15, 2005 in
the amount of $15,681. The company is current with the existing payment plan.
As of December 31, 2003 the company has paid $214,211 in principal and $50,012
in interest.

      Beginning January 15, 2004 through September 15th 2005 the Company will be
required to make 21 monthly installments. The final installment will be due
October 15, 2005 in the amount of $15,682. The company is current with the
existing payment plan. As of December 31, 2003 the company has paid $214,211 in
principal and $50,012 in interest.



      The table below summarizes our contractual commitments under leases, debt
instruments and employment contracts over the next five years.  We have no fixed
commitments to purchase inventory or materials, and no commitment extends beyond
2007.
<TABLE>
<CAPTION>
                                           2004        2005       2006       2007       2008
                                        ---------   ---------  ---------  ---------  ---------
  <S>                                   <C>         <C>        <C>        <C>        <C>
  Debt service                           $529,846     $33,736     $5,926         $0         $0
  Equipment and property leases           457,023     480,666    498,733    119,690    112,725
  Employment agreements                   723,560     301,483
                                        ---------   ---------  ---------  ---------  ---------
  Aggregate excluding obligations to
    Harman and Dialog4                  1,710,429    815,885    370,678    119,690    112,725
  Dialog4                                 597,055
  Obligation to Harman                  8,482,000
                                        ---------   ---------  ---------  ---------  ---------
  Total                               $10,789,484   $815,885   $370,678   $119,690   $112,725
                                      ===========  ==========   ========   ========   ========
</TABLE>

      Working capital generated from 2004 operations will be used to service our
commitments as detailed above, excluding our obligations to Harman.  Any excess
working capital generated from 2004 operations will be applied to expand our
business operations. The terms of the Harman debt restrict our ability to obtain
financing for these types of expansion expenditures, as well as financing for
other purposes.  Accordingly, our ability to expand will primarily depend on our
ability to generate sufficient working capital from operations.  We will closely
monitor our working capital in 2004 as we evaluate any expenditures related to
expansion.

      Accounts receivable were $866,000 at December 31, 2003 compared to
$646,000 at December 31, 2002. The 34% increase in accounts receivable is
primarily due to increase in demand for our products. We have not increased our
allowance reserve for the year ended December 2002, and reduced it by $75,000 in
2003. Maintaining our current reserve for the allowance of doubtful accounts was
attributable to the general economic upturn from which began in the latter half
of 2002 and which we expect to continue until at least the fourth quarter of
2004.

      Total inventories were $2,113,000 at December 31, 2003 compared to
$2,305,000 at December 31, 2002.  The value of inventory decreased $193,000, or
8%, due primarily to the reduction of inventory on hand. $187,000 of the
$193,000 was attributable to the decrease in Work in Process.

                                       27
<PAGE>

      For the year ending December 31, 2004, our principal working capital
requirements will be the payment of normal recurring operating costs. Management
believes that these requirements can be met from the operating cash flows.

      On May 31, 2000, our wholly owned subsidiary, CRL Systems, Inc., acquired
the assets of Orban, Inc., a wholly owned subsidiary of Harman International
Industries, Inc.  The total stated purchase price was $10.5 million, of which $2
million was paid in cash and the balance of which was paid by means of a
combination of short-term and long-term promissory notes that we issued to
Harman.  On October 1, 2001, we entered into an Amendment to Credit Agreement
with Harman under which both the long-term and the short-term notes were
converted to demand notes payable on the demand of Harman or, if no demand is
sooner made, on the dates and in the amounts specified in the Amended Credit
Agreement.  For a complete discussion of our purchase of Orban and the terms of
our Credit Agreement with Harman, see Item 12, Certain Relationships and Related
Transactions-Acquisition of Orban, Inc.

      Approximately $10,043,000 of our total indebtedness is due and payable by
December 31, 2004, unless with respect to the $8,482,000 due Harman, payment is
demanded by Harman at an earlier date.  Our President, Mr. Charles Jayson
Brentlinger, has committed to exercise his outstanding stock options, if
necessary, to satisfy a portion of the Company's debt payment requirements if
operating cash flows are inadequate to retire the debt.  If Mr. Brentlinger
exercised all of his options to purchase shares of our common stock, we would
realize gross proceeds of approximately $1,250,000. We are actively pursuing
opportunities to raise additional capital through a private equity placement of
our common stock, asset based lending, or a combination of the two.  We have
currently engaged HD Brous & Co., Inc. to advise and assist us in capital
raising efforts. We cannot offer any assurances that we will be able to attract
additional capital or that additional financing, if obtained, will be sufficient
to meet our current obligations.  If we cannot meet our current obligations, our
ability to continue as a going concern will be jeopardized.

      On June 12, 2000, we borrowed $68,387 from a non-management employee to
assist us in the purchase of the assets of Orban.  The unsecured promissory note
evidencing the debt bears interest at 12 percent per annum.  The note was
originally due September 12, 2000 but was extended to September 30, 2001 without
payment of a fee.  In order to further extend the note, we agreed to make 12
monthly installment payments of principal and interest over a one-year period
commencing September 1, 2001.  We did not pay a fee in connection with this
extension.  As part of the agreement, the note continues to bear interest at 12
percent per annum, but is compounded monthly.  As of December 31, 2003, we had
paid a total of $64,138 on the note and the remaining unpaid principal balance
was $4,249 and the accrued and unpaid interest was $12,078.

                                       28
<PAGE>
RISK FACTORS

      You should carefully consider the following risk factors and all other
information contained in this report in evaluating us and our business. You
should also keep these risk factors in mind when you read and consider the
forward-looking statements in this report and other reports we file with the
SEC.  The risks and uncertainties described below are not the only ones facing
us.  Additional risks and uncertainties that we are unaware of, or that we
currently deem less material, also may become important factors that affect us.


OUR INDEPENDENT AUDITORS HAVE INCLUDED A "GOING CONCERN" QUALIFICATION IN THEIR
REPORT ON OUR FINANCIAL STATEMENTS.

      Our independent auditors have included in their report on our financial
statements a paragraph that states that there is "substantial doubt about the
company's ability as a going concern" due to our deteriorating financial results
and liquidity challenges.  Our ability to continue as an operating entity
currently depends, in large measure, upon the willingness of several of our
lenders to forebear from declaring indebtedness in default and/or pursuing
remedies to collect debt which is in default.  In light of this situation, it is
not likely that we will be able to raise equity or debt capital to repay or
restructure our existing debt.  While we intend to continue to seek ways to
continue to operate and to discuss possible debt restructurings, we do not at
this time have commitments or agreements from any of our creditors to
restructure any indebtedness.  Our financial condition and the "going concern"
emphasis paragraph may also make it more difficult for us to maintain existing
customer relationships and to initiate and secure new customer relationships


AS A RESULT OF OUR LARGE OUTSTANDING DEBT OBLIGATIONS, WE HAVE SIGNIFICANT
ONGOING DEBT SERVICE REQUIREMENTS WHICH MAY ADVERSELY AFFECT OUR FINANCIAL AND
OPERATING FLEXIBILITY.

      On May 31, 2000, we acquired the assets of Orban, a wholly-owned
subsidiary of Harman International Industries, Inc.  The purchase price was
$10.5 million, of which $2 million was paid in cash and the balance of which was
paid by means of a combination of short-term and long-term promissory notes that
we issued to Harman.  As of September 30, 2001, our total indebtedness to Harman
was approximately $8.5 million.  Effective October 1, 2001, this indebtedness
was converted to notes payable on the demand of Harman or, if no demand is
sooner made, on the dates and in the amounts set forth in the amended credit
agreement that we entered into with Harman.  Our substantial leverage may have
important consequences for us, including the following:

      * our ability to continue as a going concern will depend in part on
        whether Harman demands payment on the debt (which at December 31, 2003
        had a principal balance of $7.9 million), or any portion thereof;
      * a significant portion of our cash flow from operations will be dedicated
        to servicing our debt obligations and will not be available for other
        business purposes;
      * the terms and conditions of our indebtedness limit our flexibility in
        planning for and reacting to changes in our business, and in making
        strategic acquisitions;
      * our ability to obtain additional financing in the future for working
        capital, capital expenditures, and other purposes may be substantially
        impaired; and
      * our substantial leverage may make us more vulnerable to economic
        downturns and competitive pressures.


      Our ability to meet our debt service obligations and reduce our total
indebtedness to Harman depends in part on our future operating performance. Our
future operating performance will depend on

                                       29
<PAGE>
our ability to expand our business operations by growing our core audio
processing business, expanding our product offerings and penetrating new and
emerging markets, which we anticipate will require additional financing.  In
addition, our future operating performance will depend on economic, competitive,
regulatory and other factors affecting our business that are beyond our control.
If we are unable to expand our business operations as planned, we may not be
able to service our outstanding indebtedness to Harman.


WE WILL NEED ADDITIONAL DEBT OR EQUITY TO SERVICE THE DEBT PAYABLE AS A RESULT
OF OUR ACQUISITION OF ORBAN, AND WE MAY NOT BE ABLE TO OBTAIN THIS FINANCING ON
ACCEPTABLE TERMS.

      Upon our acquisition of the assets of Orban, we issued a $3.5 million
short-term note and a $5 million long-term note payable to Harman. Effective
October 1, 2001, both of these notes were converted to demand notes payable on
the demand of Harman or, if no demand is sooner made, on the dates and in the
amounts set forth in the amended credit agreement that we entered into with
Harman.  Our ability to service this debt will depend on our ability to obtain
either additional debt or equity financing, or a combination thereof. We cannot
be sure, however, that we will be able to obtain the necessary debt or equity
financing on acceptable terms.  Also, additional debt financing or the sale of
additional equity securities may cause the market price of our common stock to
decline.  If we are unable to obtain additional debt or equity financing on
acceptable terms, we may have to negotiate further restructuring of the debt
with Harman.  If Harman is unwilling to restructure the debt, we may default on
the debt and our ability to continue as a going concern would be jeopardized.


OUR ABILITY TO OBTAIN AN OUTSIDE LINE OF CREDIT IS SUBJECT TO THE APPROVAL OF
OUR CURRENT CREDITORS AND, IF SUCH APPROVAL IS WITHHELD, OUR ABILITY TO COMPETE
EFFECTIVELY IN OUR INDUSTRY COULD BE JEOPARDIZED.

      In connection with our acquisition of Orban, we entered into a credit
agreement with Harman.  Under the terms of the credit agreement, we are bound by
certain covenants that prevent us from obtaining additional credit facilities
without the prior written approval of Harman.  This limitation on our ability to
obtain additional outside lines of credit may curtail our ability to make
strategic acquisitions and to conduct research and development. This in turn
could jeopardize our competitive position within our industry. In addition, our
obligation to Harman is secured by a security interest in substantially all of
our assets. Our inability to grant a security interest to anyone else in is
another factor that limits our ability to obtain third party financing.


FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

      On January 18, 2002, we acquired the assets of Dialog4 System Engineering
GmbH.  Our acquisition of this new product line has led to the establishment of
our new Orban Europe offices in Ludwigsburg, Germany. Transactions and expenses
of our Orban Europe operations are conducted in Euros which exposes us to market
risks related to foreign currency exchange rate fluctuations that could
adversely affect our operating results.  For instance, a strengthening of the
U.S. dollar against the Euro could reduce the amount of cash and income we
receive and recognize from Orban Europe. Furthermore, it is likely that for
accounting purposes we will recognize foreign currency gains or losses arising
from our operations in Europe on weighted average rates of exchange in the
period incurred and translate assets and liabilities of these operations into
U.S. dollars based on year-end foreign currency exchange rates, both of which
are subject to currency fluctuations between the U.S. dollar and the Euro.  As
foreign exchange rates vary, our results from operations and profitability may
be adversely affected.

      In 2003, we derived approximately 5% of our total revenues from our Orban
Europe operations.  This percentage may increase in future years as we further
develop and expand our operations in Europe.  We cannot predict the effects of
exchange rate fluctuations on our operating results.  We do not currently intend
to engage in foreign currency exchange hedging transactions to manage our
foreign currency exposure.  If and when we do engage in foreign currency
exchange hedging transactions, we cannot assure you that our strategies will
adequately protect our operating results from the effects of exchange rate
fluctuations.

                                       30
<PAGE>

results. We do not currently intend to engage in foreign currency exchange
hedging transactions to manage our foreign currency exposure.  If and when we do
engage in foreign currency exchange hedging transactions, we cannot assure you
that our strategies will adequately protect our operating results from the
effects of exchange rate fluctuations.


WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE AN EVALUATION OF OUR
COMBINED OPERATIONS WITH ORBAN AND OUR PROSPECTS FOR THE FUTURE.

      We commenced our combined operations with Orban on May 31, 2000.
Accordingly, we have a limited operating history on which an evaluation of our
combined operations with Orban can be based.  Our prospects must be considered
in light of the risks, expenses, difficulties and uncertainties frequently
encountered by companies in the early stages of integration, such as:

      * the difficulty of integrating the operations, technologies, personnel
        and cultures of our companies;
      * the potential disruption of the ongoing business of our companies;
      * the distraction of management of our companies from ongoing business
        concerns;
      * potential unknown liabilities associated with the merger of our
        companies; and
      * the potential disruption of our employee base.

      We cannot guarantee that any or all of the above risks, expenses,
difficulties and uncertainties will not occur as a result of our integration of
the Orban operations.  Nor can we guarantee that our integration with Orban will
be achieved successfully or as rapidly as we would like.


WE SERVE A MARKET IN WHICH THERE ARE A LIMITED NUMBER OF CUSTOMERS AND OUR
FINANCIAL WELL-BEING IS DIRECTLY TIED TO THE FINANCIAL HEALTH OF THESE
CUSTOMERS.

      In recent years, the radio and television industry in the United States
has experienced a great deal of consolidation of ownership.  As a result,
several corporations each now own a substantial number of radio and television
stations.  These corporations are the largest purchasers of our audio processing
and post-production equipment.  Moreover, a significant amount of our revenue is
derived from audio processing replacement orders that come from these customers.
Our financial stability and well-being is thus directly tied to the financial
health of these customers.  If these customers experience financial difficulty,
regardless of the cause, they may delay, reduce or cancel orders for new audio
processing or post-production equipment.  If this occurs, our results of
operations could decline and we could experience difficulty in servicing our
debt obligations.


WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGE AND INCREASED COMPETITION IF WE ARE
GOING TO BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY.

      While audio processing has been and will continue to be our core business,
we are using our existing technologies to enter the emerging markets of digital
audio broadcasting, cable television and Internet-related audio delivery. These
markets are characterized by rapid technological change and require a
significant commitment of capital and human resources.  We intend to engage
continually in research and development activities so that we can improve our
current products and develop new products. However, our significant debt
obligations may limit the amount of resources, both capital and human, that we
can commit to research and development.  This could jeopardize the success and
reception of our products in these emerging markets.  In addition, because of
the rapid pace of change and the intense competition that characterizes these
markets, our products may become unmarketable or obsolete by a competitor's more
rapid introduction to the marketplace.

                                       31
<PAGE>
WE MAY NOT BE ABLE TO RETAIN OUR EXISTING PERSONNEL OR HIRE AND RETAIN THE
ADDITIONAL PERSONNEL THAT WE NEED TO SUSTAIN AND GROW OUR BUSINESS.

      Our future success will depend on our ability to attract, retain and
motivate employees with the necessary skills and expertise required by our
business.  Competition for employees who possess the technical expertise to
develop and manufacture our products is intense.  A shortage in available
skilled labor could require us to increase our wages and benefits to attract and
retain enough employees.  An increase in our labor costs, or our inability to
attract, retain and motivate employees, would likely harm our growth plans and
may adversely affect our business and results of operations.


WE DEPEND ON A NUMBER OF VENDORS TO SUPPLY US WITH COMPONENT PARTS THAT ARE
NECESSARY TO THE PRODUCTION OF OUR AUDIO PROCESSING AND POST-PRODUCTION
EQUIPMENT.

      We rely on certain vendors to provide component parts for use in the
manufacturing of our audio processing and post-production equipment.  As
technology improves, some of these parts have become obsolete and vendors have
discontinued their production of such parts.  When this occurs, we must either
obtain these necessary parts from alternative sources, or design around these
parts so that we are able to continue producing our audio processing and
post-production equipment.  If any of the component parts that we require become
unavailable and we are not able to design around these parts, we may not be able
to offer some of our products and our sales revenues may decline.


OUR PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD EXERCISES
SIGNIFICANT CONTROL OVER US.

     Charles J. Brentlinger, our President, Chief Executive Officer and Chairman
of the Board, currently owns 823,779 shares of our common stock and holds
options to purchase approximately 1,365,005 additional shares.  Based on a total
of 4,172,533 shares of our common stock issued and outstanding as of March 30,
2004, if Mr. Brentlinger exercises all of his options he will own of record and
beneficially approximately 39.5% of our issued and outstanding shares.  This
means that Mr. Brentlinger exercises, and will continue to exercise, significant
control over the business and affairs of our company. Mr. Brentlinger's exercise
of this control may, in certain circumstances, deter or delay a merger, tender
offers, other possible takeover attempts or changes in our management which may
be favored by some or all of our minority shareholders.

                                       32
<PAGE>
WE DEPEND ON A FEW KEY MANAGEMENT PERSONS.

      We are substantially dependent on the personal efforts and abilities of
Charles Jayson Brentlinger, our Chairman, President and Chief Executive Officer,
and Robert Orban, our Vice President and Chief Engineer.  The loss of either of
these officers or our other key management persons could harm our business and
prospects for growth.  As a result, we have obtained key man life insurance
policies on the lives of each of these officers. We also have employment
agreements with each of these officers which are more fully described elsewhere
in this report.


THE LOCATION OF OUR ORBAN DIVISION SUBJECTS US TO A NUMBER OF RISKS THAT ARE
BEYOND OUR CONTROL WHICH COULD RESULT IN PRODUCTION INTERRUPTIONS.

      Our business depends on the efficient and uninterrupted production of our
audio processing equipment and other products.  Our Orban division is currently
located in San Leandro, California, and we expect to maintain our operations at
this facility for the foreseeable future.  While we have taken precautions
against production interruptions, interruptions could nevertheless result from
natural disasters such as earthquakes, fires or floods.  In addition, the power
shortages which occur in California from time to time have resulted in planned
and unplanned power outages and increased energy costs which we may not be able
to pass on to our customers. Power outages, which last beyond our backup and
alternative power arrangements, could harm our customers and our business.
Finally, our location in the Silicon Valley corridor of California subjects us
to increased operating costs and labor shortages which could adversely affect
our production capabilities and result in reduced revenues.


THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE AND THE VALUE OF YOUR
INVESTMENT MAY DECLINE.

      The volatility of the market price of our common stock may cause wide
fluctuations in the price of our common stock on the OTC Bulletin Board. The
market price of our common stock is likely to be affected by:

      * changes in general conditions in the economy or the financial markets;
      * variations in our quarterly operating results;
      * changes in financial estimates by securities analysts;
      * other developments affecting us, our industry, customers or competitors;
      * the operating and stock price performance of companies that investors
        deem comparable to us; and
      * the number of shares available for resale in the public markets under
        applicable securities laws.


THE LIQUIDITY OF OUR COMMON STOCK COULD BE RESTRICTED BECAUSE OUR COMMON STOCK
FALLS WITHIN THE DEFINITION OF A PENNY STOCK.

      Under the rules and regulations of the Securities and Exchange Commission
(SEC), as long as the trading price of our common stock on the OTC Bulletin
Board is less than $5 per share, our common stock will come within the
definition of a "penny stock."  On March 30, 2004, the closing sale price of our
common stock on the OTC Bulletin Board was $0.75 per share. Generally speaking,
the definition of a "penny stock" does not include stock that is traded on
Nasdaq or on a national securities exchange.  Since our common stock is traded
on the OTC Bulletin Board, rather than on Nasdaq or a national securities
exchange, our common stock falls within the definition of a  "penny stock" while
it is trading below $5 per share.  As a result, the trading of our common stock
is subject to certain "penny stock" rules and regulations.

                                       33
<PAGE>
      The SEC rules and regulations require that broker-dealers, prior to
effecting any transaction in a penny stock, satisfy certain disclosure and
procedural requirements with respect to the prospective customer.  These
requirements include delivery to the customer of an SEC-prepared risk disclosure
schedule explaining the nature and risks of the penny stock market, disclosure
to the customer of the commissions payable to both the broker-dealer and any
other salesperson in connection with the transaction, and disclosure to the
customer of the current quotations for the stock to be purchased.  In addition,
if the broker-dealer is the sole market maker, it must disclose this fact and
the broker-dealer's presumed control over the market.  Finally, prior to
effecting any penny stock transaction, broker-dealers must make individualized
written suitability determinations and obtain a written agreement from customers
verifying the terms of the transaction.  Subsequent to any sale of penny stock,
broker-dealers must send monthly statements disclosing recent price information
for the penny stock held in the customer's account and certain other information
relating to the limited market in penny stocks. These rules, regulations and
procedural requirements may restrict the ability of broker-dealers to sell our
common stock or discourage them from doing so. As a result, purchasers may find
it more difficult to dispose of, or to obtain accurate quotations for, our
common stock.


BECAUSE OUR SUCCESS DEPENDS IN PART ON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY, INFRINGEMENT ON OUR PROPRIETARY RIGHTS COULD LEAD TO COSTLY LITIGATION
AND DECREASED REVENUES.

      Our copyrights, patents, trademarks, trade secrets and similar
intellectual property are critical to our success.  To establish and protect our
proprietary rights, we rely on a combination of copyright, trademark, patent and
trade secret laws, confidentiality and non-disclosure agreements and contractual
provisions with employees and third parties, and license agreements with
consultants, vendors and customers.  Despite such protections, there can be no
assurance that these steps will be adequate, that we will be able to secure
trademark registrations for all of our marks in the United States or other
countries or that third parties will not infringe upon or misappropriate our
copyrights, patents, trademarks and similar proprietary rights.  In addition,
effective copyright, patent and trademark protection may be unenforceable or
limited in certain countries. In the future, litigation may be necessary to
enforce and protect our trade secrets, copyrights, patents and other
intellectual property rights.  We may also be subject to litigation to defend
against claims of infringement of the rights of others or to determine the scope
and validity of the intellectual property rights of others.  Any such litigation
could cause us to incur substantial expenses and would adversely affect our
financial condition.

                                       34
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

                                      INDEX

                                                                          Page
                                                                          ----

Independent Auditors' Report .............................................. 36

Consolidated Balance Sheets - December 31, 2003 and 2002 .................. 37

Consolidated Statements of Operations -
    For the Years Ended December 31, 2003 and 2002 ........................ 39

Consolidated  Statements of Stockholders' Equity (Deficit) -
    For the Years Ended December 31, 2003 and 2002 ........................ 40

Consolidated  Statements of Cash Flows -
    For the Years Ended December 31, 2003 and 2002 ........................ 41

Notes to Financial Statements ............................................. 43

                                       35
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Circuit Research Labs, Inc.

We have audited the accompanying consolidated balance sheet of Circuit Research
Labs, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statement of operations, stockholders' equity (deficit) and cash
flows for the years then ended.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Circuit Research
Labs, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the results of
their operations and their cash flows for the years then ended in conformity
with U.S. generally accepted accounting principles.

As described in Note 12, the Company's reported net losses and past-due
obligations have caused it to enter into negotiations to restructure certain
loan agreements.  These events and circumstances raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 12. The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of these uncertainties.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, on January 1, 2002.




Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
March 19, 2004


                                       36
<PAGE>
                  CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002

ASSETS
                                                        2003            2002
CURRENT ASSETS:                                     -----------     -----------
   Cash                                               $222,631        $214,401
   Accounts receivable, trade, net of allowance for
     doubtful accounts of $33,361 in 2003 and
     $108,361 in 2002                                  866,451         645,655
   Inventories                                       2,112,614       2,305,194
   Other current assets                                168,896         105,161
                                                    -----------     -----------
     Total current assets                            3,370,592       3,270,411
                                                    -----------     -----------

PROPERTY, PLANT AND EQUIPMENT - Net                    569,183         750,206
                                                    -----------     -----------
OTHER ASSETS:
   Goodwill                                          7,476,008       7,476,008
   Other                                               351,503         287,582
                                                   -----------     -----------
                                                     7,827,511       7,763,590

TOTAL                                              $11,767,286     $11,784,207
                                                   ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                 $1,103,452      $1,196,967
   Notes payable to stockholders                        92,500               0
   Notes payable                                     8,482,000       8,482,000
   Current portion of long-term debt                 1,340,709       1,091,404
   Accrued salaries and benefits                       535,017         373,603
   Customer deposits                                    39,266         255,281
   Other accrued expenses and liabilities            1,001,097         565,014
                                                   -----------     -----------
    Total current liabilities                       12,594,041      11,964,269
                                                   -----------     -----------

LONG-TERM DEBT, LESS CURRENT PORTION                    39,662         461,242
                                                   -----------     -----------
    Total liabilities                               12,633,703      12,425,511
                                                   -----------     -----------

                                       37
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002 - continued
                                                        2003            2002
                                                   -----------     -----------
STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $100 par value - authorized,
     500,000 shares, None issued
   Common stock, $.10 par value - authorized,
     20,000,000 shares, 4,153,574 and 3,767,404
     shares issued and outstanding at December
     31, 2003 and 2002                                 415,358         376,741
   Additional paid-in capital                        5,555,932       5,434,785
   Accumulated deficit                              (6,837,707)     (6,452,830)
                                                   -----------     -----------
     Total stockholders' deficit                      (866,417)       (641,304)
                                                   -----------     -----------
TOTAL                                              $11,767,286     $11,784,207
                                                   ===========     ===========

See Notes to Consolidated Financial Statements.

                                       38
<PAGE>
                  CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2003 and 2002

                                                        2003            2002
                                                   -----------     -----------
NET SALES                                          $12,381,834     $10,772,593
COST OF GOODS SOLD                                   5,536,878       5,906,507
                                                   -----------     -----------
Gross profit                                         6,844,956       4,866,086
                                                   -----------     -----------
OPERATING EXPENSES
   Selling, general and administrative               4,331,001       4,511,972
   Research and development                          1,375,159       1,440,686
   Depreciation                                        207,292         344,262
                                                   -----------     -----------
Total operating expenses                             5,913,452       6,296,920
                                                   -----------     -----------
INCOME (LOSS) FROM OPERATIONS                          931,504      (1,430,834)
                                                   -----------     -----------
OTHER (INCOME) EXPENSE:
   Sundry expense (income)                              56,340        (455,649)
   Interest expense                                  1,260,041       1,159,854
                                                   -----------     -----------
Total other expense                                  1,316,381         704,205
                                                   -----------     -----------
NET LOSS BEFORE INCOME TAXES                          (384,877)     (2,135,039)

INCOME TAXES                                                 0               0
                                                   -----------     -----------
NET LOSS                                             ($384,877)    ($2,135,039)
                                                   ===========     ===========

NET LOSS PER COMMON SHARE - BASIC AND DILUTED           ($0.10)         ($0.58)
                                                   ===========     ===========

See Notes to Consolidated Financial Statements.

                                       39
<PAGE>
                  CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 For the Years Ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                       Common
                               ---------------------
                                                        Additional
                                                         Paid-in     Accumulated
                                Shares       Amount      Capital       Deficit       Total
                               ---------    ---------   ----------   ------------   ----------
<S>                            <C>          <C>         <C>          <C>            <C>
Balance, January 1, 2002       2,388,880     $238,888   $4,196,229   ($4,317,791)    $117,326

Issuance of common shares      1,378,524      137,853    1,238,556                  1,376,409

Net loss                                                              (2,135,039)  (2,135,039)
                               ---------    ---------   ----------   ------------   ----------
Balance, December 31, 2002     3,767,404      376,741    5,434,785    (6,452,830)    (641,304)
                               ---------    ---------   ----------   ------------   ----------

Issuance of common shares        386,170       38,617      121,147                    159,764

Net loss                                                                (384,877)    (384,877)
                               ---------    ---------   ----------   ------------   ----------
Balance, December 31, 2003     4,153,574     $415,358   $5,555,932   ($6,837,707)   ($866,417)
                               =========    =========   ==========   ============   ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       40
<PAGE>
                  CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 2003 and 2002

                                                        2003            2002
                                                   -----------     -----------
OPERATING ACTIVITIES:
  Net Loss                                           ($384,877)    ($2,135,039)
  Adjustments to reconcile net loss to net
    cash provided by operating activities
  Depreciation and amortization                        294,451         430,940
  Provision for uncollectible accounts                 (75,000)          9,698
  Provision for inventories reserve                          0         168,018
  Stock compensation                                   159,764         108,409
  Gain on sale of building                                   0        (351,757)

Changes in assets and liabilities:
  Accounts receivable                                 (145,796)        (14,197)
  Inventories                                          192,580       1,064,233
  Prepaid expenses and other assets                   (127,656)        (23,822)
  Accounts payable, accrued expenses and deposits      307,968         764,078
                                                   -----------     -----------
    Net cash provided by operating activities          221,434          20,561
                                                   -----------     -----------
INVESTING ACTIVITIES:
  Proceeds received from sale of building                    0         679,499
  Capital expenditures                                (113,428)        (30,516)
                                                   -----------     -----------
    Net cash (used in) provided by
      investing activities                            (113,428)        648,983
                                                   -----------     -----------
FINANCING ACTIVITIES:
  Proceeds from stockholder advances                   298,000
  Repayment of stockholder advances                   (205,500)
  Principal payments on long-term debt                (171,105)       (663,047)
  Principal payments on notes payable                  (21,171)        (90,991)

  Proceeds from sale of common stock                         0          18,000
                                                   -----------     -----------
    Net cash used in financing activities              (99,776)       (736,038)
                                                   -----------     -----------

NET INCREASE (DECREASE) IN CASH                          8,230         (66,494)


CASH AT BEGINNING OF YEAR                              214,401         280,895
                                                   -----------     -----------
CASH AT END OF YEAR                                   $222,631        $214,401
                                                   ===========     ============

                                       41
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002 - continued

                                                        2003            2002
                                                   -----------     -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
    Interest                                          $764,843        $835,081
                                                   ===========     ===========

    Income Taxes                                        $1,600              $0
                                                   ===========     ===========


NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
  Acquisitions:
    Fair value of net assets acquired,
      including goodwill                                    $0      $2,034,563
    Debt issued to seller                                    0        (750,000)
    Common Stock issued to seller                            0      (1,250,000)
                                                   -----------     -----------
    Cash paid                                               $0         $34,563

                                                   ===========     ===========

Common stock issued for consulting
  services rendered                                         $0        $100,000
                                                   ===========     ===========

Common stock issued for compensation                  $159,764          $8,409
                                                   ===========     ===========
Solectron inventory purchase financed with
  long term debt                                            $0        $714,938
                                                   ===========     ===========
Conversion of accounts payable to notes
  payable and long-term debt                           $46,087         $27,553
                                                   ===========     ===========

See Notes to Consolidated Financial Statements.

                                       42
<PAGE>
                  CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Circuit Research Labs, Inc. (the "Company" or "CRL") is an electronics company
developing, manufacturing and marketing high quality audio processing and
transmission encoding equipment for the radio, television and professional audio
markets worldwide.

Principles of Consolidation - The consolidated financial statements include the
accounts of Circuit Research Labs, Inc. and its wholly owned subsidiaries:  CRL
Systems, Inc. ("CRL Systems") and CRL International, Inc. (collectively, the
"Company").   Significant intercompany accounts and transactions have been
eliminated in consolidation.

On January 18, 2002 we purchased the assets of Dialog4 pursuant to an Asset Sale
and Purchase Agreement.  The acquisition has been accounted for as a purchase
and, accordingly, the net assets and results of operations of Dialog4 have been
included in the consolidated financial statements commencing January 18, 2002.
The excess of the total acquisition costs over the fair value of the assets
acquired was approximately $1.7 million. See note 6.


Significant accounting policies are as follows:

a.    Inventories are stated at the lower of cost (first-in, first-out method)
      or market.

b.    Property, plant and equipment are stated at cost.  Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the related assets ranging from 3 to 5 years for furniture, fixtures,
      machinery and equipment, and 31.5 years for building and improvements.

c.    Goodwill. The Company adopted SFAS 142, Goodwill and Other Intangible
      Assets on January 1, 2002.  SFAS 142 requires that goodwill be tested for
      impairment, at least annually, and shall not be amortized.  The goodwill
      impairment test is a two-step process.  The first step compares the fair
      value of a reporting unit with its carrying amount.  If the fair value
      exceeds the carrying amount, goodwill of the reporting unit is considered
      not impaired and no further testing is necessary.  If the fair value is
      less than the carrying value, the second step must be performed to
      determine the amount of the impairment.  The second step compares the
      implied fair value of the reporting unit goodwill with the carrying amount
      of that goodwill. If the carrying amount of the reporting unit goodwill
      exceeds the implied fair value of that goodwill, an impairment loss is
      recognized in an amount equal to that excess.

      The Company has determined the estimated fair value of the Company with a
      view to determining whether the goodwill has been impaired under these new
      rules. Management has concluded that the estimated fair value of the
      Company was in excess of its carrying value as of

                                       43
<PAGE>
      January 1, 2002.  The fair value has been estimated based on the customer
      base, cash flows and existing product lines. In addition, the Company
      continued the annual goodwill impairment test for the years ended December
      31, 2003 and 2002. As a result of these reviews the Company has
      established that no impairment loss is required to be recorded upon the
      adoption of SFAS 142, nor for the years ended December 31, 2003 and 2002.

d. Long-lived assets - The Company reviews the carrying value of its long-lived
      assets and identifiable intangibles for possible impairment whenever
      events or changes in circumstances indicate that the carrying amounts may
      not be recoverable.  For assets to be disposed of, the Company reports
      long-lived assets and certain identifiable intangibles at the lower of
      carrying amount or fair value less cost to sell. No impairment losses were
      recorded for the years ended December 31, 2003 and 2002.

e.    Warranty  - The Company's warranty period is two years from the date of
      sale for our digital products and one year from date of sale for our
      analog products. Warranty expense was $66,013 and $161,934 for 2003 and
      2002, respectively. The accrued warranty obligation was $122,000 at both
      December 31, 2003 and 2002.

f.    Revenue - In accordance with SFAS 48, "Revenue Recognition When Right of
      Return Exists," revenue is recognized on sales of products when title
      transfers to customers, which is generally at the time of shipment.  The
      Company sells its products primarily through a network of wholesale
      distributors and dealers. The Company's primary payment terms with its
      dealers and distributors are 5% prepayment net 30 after date of shipment
      for domestic and 5% prepayment net 30 after date of shipment for
      international.

      In 2003 and 2002, one customer accounted for approximately 20% and 14% of
      net sales, respectively.

      Sales transactions with distributors occur at prices fixed at the sale
      date without contingencies related to (i) the buyer's resale of the
      product, (ii) the theft or damage of the product or (iii) future Company
      performance obligations to effect the resale of the product. Purchasers
      have economic substance separate from the Company and expected sales
      returns can be reasonably  estimated. Because the Company does not sell on
      consignment or guarantee the resale of its products by its dealer or
      distributor network, the Company records revenue at the time of shipment
      in accordance with SFAS 48.

      The Company grants trade credit to its customers. Receivables are valued
      at management's estimate of the amount that will ultimately be collected.
      The allowance for doubtful accounts is based on specific identification of
      uncollectible accounts and the Company's historical collection experience.
      Based on managements evaluation the allowance for doubtful accounts
      reserve was reduced by $75,000 during 2003.


g.    Research and development costs totaling $1,375,159 and $1,440,686 for the
      years ended December 31, 2003 and 2002, respectively, are charged to
      expense as incurred.


h.    Income taxes - Income tax expense is calculated under the liability method
      as required under SFAS No. 109, "Accounting for Income Taxes."  Under the
      liability method, deferred tax assets and liabilities are determined based
      upon the differences between financial statement carrying amounts and the
      tax bases of existing assets and liabilities, and are measured at the tax
      rates that will be in effect when these differences reverse.  The benefit
      of the Company's operating loss carryforwards has been reduced 100% by a
      valuation allowance at December 31, 2003 and 2002.

                                       44
<PAGE>
i.    Financial instruments - SFAS No. 107 "Disclosures About Fair Value of
      Financial Instruments" requires disclosures of the estimated fair value of
      certain financial instruments.  The Company has estimated the fair value
      of its financial instruments using available market data.  However,
      considerable judgment is required in interpreting market data to develop
      estimates of fair value. The use of different market assumptions or
      methodologies may have a material effect on the estimates of fair value.
      The carrying values of cash, receivables, accounts payable and long-term
      debt approximate fair values due to the short-term maturities or market
      rates of interest of these instruments.

j.    Net loss per share - In calculating net loss per share for the year ended
      December 31, 2003, the effects of 2,815,005 shares relating to options to
      purchase common stock were not used for computing diluted earnings per
      share because the results would be anti-dilutive.  For the year ended
      December 31, 2002, the options and warrants to purchase 1,565,005 and
      1,395,690 shares respectively, of common stock were not used in computing
      diluted earnings because the result would be anti-dilutive.  Statement of
      Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
      establishes standards for computing and presenting earnings per share.  It
      also requires the dual presentation of basic and diluted earnings per
      share on the face of the statements of operations. Earnings per share is
      calculated as follows:

                                                   Year Ended
                                                   December 31,
                                           ---------------------------
                                               2003           2002
                                           ------------   ------------
      Numerator
        Net loss                             ($384,877)   ($2,135,039)

      Denominator
        Weighted average shares              3,903,238      3,658,084

      Basic and diluted net loss per share      ($0.10)        ($0.58)


k.    Advertising Costs - Advertising costs are expensed as incurred with the
      exception of any expenses paid in connection with a sales event that has
      not yet taken place. Those advertising costs are classified as prepaid
      expense items until after the sales event.  Advertising expense for the
      years ended December 31, 2003 and 2002 were $46,482 and $103,896,
      respectively.

l.    Shipping and handling costs - It is the Company's policy to classify
      shipping and handling costs as part of selling, general and administrative
      expenses in the statement of income. Total delivery costs were $25,489 and
      $38,008 in 2003 and 2002, respectively.

m.    New accounting pronouncements

      In December 2002 the FASB issued SFAS 148 "Accounting for Stock Based
      Compensation". This SFAS amends SFAS 123 and provides new guidance
      regarding the transition should an entity change from the intrinsic value
      method to the fair value method of accounting for employee stock based
      compensation cost. Additional information is now required to be disclosed


                                       45
<PAGE>
      regarding such cost in the financial statements of public companies.  The
      Company does not presently plan to adopt fair value accounting for
      employee stock based compensation cost.

      Statement of Financial Accounting Standards No. 149, Amendment of
      Statement 133 on Derivative Instruments and Hedging Activities, amends and
      clarifies financial accounting and reporting for derivative instruments
      for certain decisions made by the Financial Accounting Standards Board
      identified during the implementation of Statement 133 and amends Statement
      133 to clarify the definition of a derivative. This statement is not
      expected to impact the Company's financial reporting.

      In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity" ("SFAS
      150"). SFAS 150 establishes standards for how an issuer classifies and
      measures certain financial instruments with characteristics of both
      liabilities and equity. SFAS 150 requires that an issuer classify a
      financial instrument that is within its scope as a liability (or an asset
      in some circumstances). The requirements of this statement apply to
      issuers' classification and measurement of freestanding financial
      instruments, including those that comprise more than one option or forward
      contract. SFAS 150 is effective for financial instruments entered into or
      modified after May 31, 2003, and otherwise is effective at the beginning
      of the first interim period beginning after June 15, 2003. Adoption of
      SFAS 150 did not have any impact on the Company's results of operations or
      financial position.

      In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
      Guarantor's Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others, which expands on
      the accounting guidance of Statements No. 5, 57, and 107 and incorporates
      without change the provisions of FASB Interpretation No. 34, which is
      being superseded.  This Interpretation requires a guarantor to recognize,
      at the inception of a guarantee, a liability for the fair value of the
      obligation undertaken in issuing the guarantee. Finally, guarantors are
      required to make significant new disclosures, even if the likelihood of
      the guarantor making payments under the guarantee is remote. Adoption of
      FIN 45 did not have any impact on the Company's results of operations or
      financial position.

      In January 2003, the FASB issued Interpretation No 46 ("FIN 46"),
      Consolidation of Variable Interest Entities.  The objective of this
      interpretation is to provide guidance on how to identify a VIE and
      determine when the assets, liabilities, noncontrolling interests and
      results of operations of a VIE need to be included in a company's
      consolidated financial statements.  A company that holds variable
      interests in an entity will need to consolidate the entity if the
      company's interest in the variable interest entity is such that the
      company will absorb a majority of the variable interest entity's expected
      losses and/or receive a majority of the entity's expected residual
      returns, if they occur. The Company has no interests in VIE and FIN 46 did
      not have an impact on the Company's results of operations or
      financial position.

      In December 2003, the FASB issued FIN 46R, "Consolidation of Variable
      Interest Entities, an Interpretation of ARB 51," replacing FIN 46, of the
      same title, that was issued in January 2003.  FIN 46R provides guidance on
      which certain entities should be consolidated or the interests in those
      entities should be disclosed by enterprises that do not control them
      through majority voting interest.  Under FIN 46R, entities are required to
      be consolidated by enterprises that lack majority voting interest when
      equity investors of those entities have insignificant capital at risk or
      they lack voting rights, the obligation to absorb expected losses, or the
      right to receive expected returns.  Entities identified with these
      characteristics are called VIE and the interests that enterprises have in
      these entities are called variable interests.  These interests can derive


                                       46
<PAGE>
      from certain guarantees, leases, loans or other arrangements that result
      in risks and rewards that are disproportionate to the voting interests in
      the entities.

      The provisions of FIN 46R must be applied for VIEs created after January
      31, 2003 and for variable interests in entities commonly referred to as
      "special purpose entities."  For all other VIEs, implementation is
      required by March 31, 2004. The Company has no interest in VIES. Our
      adoption of FIN 46R did not have an impact on our consolidated financial
      statements or disclosures.

n.    Use of estimates - The preparation of consolidated financial statements in
      conformity with generally accepted accounting principles necessarily
      requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the consolidated financial
      statements and the reported amounts of revenues and expenses during the
      reported period.  Actual results could differ from these estimates.

o.    Stock Options - The Company uses the intrinsic value method to account for
      stock - based employee compensation.


2.   INVENTORIES

     Inventories consist of the following at December 31:

                                                        2003            2002
                                                    ----------      ----------
     Raw materials and supplies                     $2,336,617      $2,388,922
     Work in process                                   792,334         993,160
     Finished goods                                    525,057         464,506
                                                    ----------      ----------
     Total                                           3,654,008       3,846,588
     Less obsolescence reserve beginning of year    (1,541,394)     (1,373,376)
     Additions to the obsolescence reserve                   0        (168,018)
                                                    ----------      ----------
     Inventories, net                               $2,112,614      $2,305,194
                                                    ==========      ==========


3.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following at December 31:

                                                        2003            2002
                                                    ----------      ----------
     Leasehold improvements                           $404,617        $382,059
     Furniture and fixtures                             98,120          95,755
     Computer equipment                                921,292         898,149
     Machinery and equipment                         1,187,642       1,122,280
                                                    ----------      ----------
                                                     2,611,671       2,498,243
     Less accumulated depreciation and amortization  2,042,488       1,748,037
                                                    ----------      ----------
     Property, plant and equipment - net              $569,183        $750,206
                                                    ==========      ==========

Provision for depreciation and amortization charged to operations for the years
ended December 31, 2003 and 2002 amounted to $294,451 and $430,940,
respectively, of which $ 87,160 and $90,491 are included as a component of cost
of goods sold, respectively. 2002 other income included $351,751 of gain on the
sale of the property in Tempe, Arizona.


                                       47
<PAGE>


4.   LONG-TERM DEBT & NOTES PAYABLE

Long-term debt consists of the following at December 31:

                                                        2003            2002
                                                    ----------      ----------
     Orban acquisition note to stockholder            $178,905        $178,905
     Avocet Instruments, Inc.                           32,824          44,207
     Dialog4 Engineering GmbH see Note 6               597,055         597,055
     Solectron GmbH see Note 6                         504,271         649,371
     Vendor notes                                       63,066          70,168
     Employee note                                       4,250          12,940
                                                    ----------      ----------
     Total long-term debt                            1,380,371       1,552,646
     Less current portion                            1,340,709       1,091,404
                                                    ----------      ----------
     Total long-term debt, less current portion        $39,662        $461,242
                                                    ==========      ==========

     In connection with the acquisition of the assets of Orban, the Company
issued $205,000 in long-term debt to a stockholder in consideration for his role
in such acquisition.  The note bears interest at 7.5 percent per annum. On
November 12, 2001, the Company and the stockholder agreed to defer the payments
to January 2002 with interest accruing at the rate of 7.5% per annum. As of
December 31, 2003, the Company has made partial payments on the accrued interest
and no payments to reduce the principal. As of December 31, 2003, the
outstanding principal balance of this debt was $178,905, plus past due interest
of $2,274.

     On June 12, 2000, we borrowed $68,387 from an employee to assist us in the
purchase of the assets of Orban.  As of December 31, 2003, we had paid a total
of $64,138 on the note and the remaining unpaid balance was $4,250 plus $12,078
in accrued interest at 12 % per annum.

     On May 31, 2001, CRL acquired the assets of Avocet Instruments, Inc. for
$82,980 plus other costs of $3,350. The remaining unpaid purchase price is being
paid in monthly installments of $1,200, including interest at the rate of five
percent per annum through June 30, 2006. $32,824 is due at December 31, 2003.

     In the fourth quarter of 2001, the Company converted various trade payables
into notes payable and long-term debt totaling $179,903.  Accounts payable
converted to notes payable in 2003 and in 2002 amounted to $46,087 and $27,553.

Future  minimum payments as of December 31, 2003 on the long-term debt are as
follows:
              2004            $1,340,709
              2005                33,736
              2006                 5,926
                              ----------
                              $1,380,371
                              ==========

                                       48
<PAGE>
5.    NOTES PAYABLE

Payable to others

      On May 31, 2000, our wholly owned subsidiary, CRL Systems, Inc., acquired
the assets of Orban, Inc., a wholly owned subsidiary of Harman International
Industries, Inc.  The purchase price was $10.5 million, of which $2 million was
paid in cash and the balance of which was paid by means of a combination of
short-term and long-term promissory notes that we issued to Harman.  On October
1, 2001, we entered into an amendment to credit agreement with Harman under
which both the long-term and the short-term notes were converted to demand notes
payable on the demand of Harman or, if no demand is sooner made, on the dates
and in the amounts specified in the amended credit agreement. At December 31,
2003 and 2002 $8,482,000 is outstanding.

      Management for some time has been negotiating with Harman Acquisition
Corp., a wholly owned subsidiary of Harman International Industries, Inc., with
respect to restructuring the existing debt of the Company to Harman December 31,
2003, $8,482,000 in principal is outstanding and bears interest of 12% per
annum. If such a restructuring occurs under the terms presently being discussed,
the Company will need to make a principal payment of $1,000,000 (which can be
made in installments), following which the interest rate on the unpaid balances
will be reduced to 6% per annum retroactive to April 1, 2003. The Company will
restate the principal debt amount to reflect the retroactive balance of
$8,482,000 as stated on April 1, 2003. $3,500,000 of the unpaid balance will be
converted into 19% of the common stock of the Company, and the remaining unpaid
balance will be payable over five years in accordance with a payment schedule.
No agreement has yet been entered into with Harman, and if no agreement is
reached, the principal balance of $8,482,000 plus interest at the rate of 12%
per annum will continue to be payable on demand. There is no assurance that the
Company can reach a final agreement with Harman for restructuring of the debt,
nor that the agreement, if entered into, will contain the same terms presently
being discussed. As of December 31, 2003, we are in arrears on interest
installments on the Harman obligation in an aggregate amount of $698,984 (at a
rate of 12% per annum).


Payable to stockholders

      On January 23, 2003, Jayson Russell Brentlinger, the father of the
Company's president, Charles Jayson Brentlinger, loaned the Company $100,000 for
its short term working capital needs. On May 9, 2003, the loan was paid in full.
To induce Jayson Russell Brentlinger to make the loan, the Company issued
options to him to purchase 1,250,000 shares of common stock of the Company for a
purchase price of $0.55 per share, the market price of the shares on the date
the option was issued.  Jayson Russell Brentlinger may exercise the options at
any time prior to January 23, 2006, and has not exercised any of the options as
of December 31, 2003.

      On February 20, 2003, Robert Orban, the Company's Vice President and Chief
Engineer, loaned the Company $68,000 for short term working capital needs. The
loan was paid in full on May 20, 2003 with interest at the rate of 16 percent
per annum. To induce Mr. Orban to make the loan, the Company gave him a choice
to receive options to purchase 68,000 shares of common stock or to receive 1
(one) share of common stock per dollar loaned. As of December 31, 2003, Mr.
Orban has not made a decision under his right to elect.

      On May 19, 2003, Phillip T Zeni, the Company's Executive Vice President
and Chief Operating Officer, loaned the Company $100,000 to be applied to
the Harman debt. The loan was due August 19,

                                       49
<PAGE>
2003, with interest at a rate of 16 percent per annum. To induce Mr. Zeni to
make the loan, the Company granted 2 (two) shares of common stock per dollar
loaned. The Company will also issue options to Mr. Zeni to purchase 200,000
shares of common stock of the Company for a purchase price of $0.45 per share.
These options will be issued up to one year after the maturity date of the note,
or when and if a private placement is offered to raise the $1,000,000 to satisfy
the terms of the proposed Harman debt restructure, whichever last occurs.  As of
December 31, 2003 the Company has repaid $37,500 of loan to  Mr. Zeni.

      Two other shareholders loaned the Company $10,000 and $20,000
respectively, both receiving one year notes accruing interest at rate of 9% per
annum. Both notes will be due and payable with interest in June 2004. The
proceeds from these notes were used to reduce the Harman debt. Accrued interest
to Stockholders was $70,481 at December 31, 2003.


6.    ACQUISITION OF DIALOG4 ASSETS

      On January 18, 2002, the Company acquired the assets of Dialog4 System
Engineering GmbH ("Dialog4").  Dialog4, a German corporation based in
Ludwigsburg, Germany, is a worldwide leader in ISO/MPEG, audio, ISDN, satellite
transmission, networking and storage. Dialog4 has been designing and
manufacturing equipment for the codec market for over ten years.  Its products,
available in Europe since 1993, include the MusicTaxi codec for encoding and
decoding audio and data over TCP/IP on the Internet, ISDN and satellite, whose
technology is to be considered state of the art at that time.

      The Company purchased the assets of Dialog4 pursuant to an Asset Sale and
Purchase Agreement for $2 million, comprised of 1,250,000 shares of restricted
common stock, valued at $1.00 per share, and $750,000 cash to be paid at a later
date either by the Company from its working capital or by the Company's
President and Chief Executive Officer, Charles Jayson Brentlinger.

The following table shows the fair values of assets and liabilities recorded for
the acquisition of the assets of Dialog4 System Engineering GmbH:


      Inventories                   $   228,000
      Property and equipment, net        65,000
      Goodwill                        1,742,000

      Share consideration paid       $1,250,000
      Debt issued                       750,000
      Cash consideration paid            35,000
      Debt assumed                            0


      The Company was willing to purchase the assets of Dialog4 for $1.7 million
over its book value because management believed the cost to develop those
products would have exceeded the $1.7 million. All goodwill is amortized over a
15-year period for tax reporting purposes.

      Pro forma information for 2002 would not be significantly different from
the historical information for 2002 because the operations for Dialog4 for the
period from January 1, 2002 through January 18, 2002 was not significant.

      The Company still owes Dialog4 approximately $597,000, which is payable
$37,500 monthly plus interest, for the purchase of the Dialog4 assets, and
we still need to register the 1,250,000 shares

                                       50
<PAGE>
issued to Dialog4 for the purchase of the assets. The Company has not been
making payments since August 2002 due to disputes with Solectron and other
vendors that have claims against Dialog4 that pre-date our acquisition of
Dialgo4's assets, but for which we may have liability under German Law. The
company made an unsuccessful effort to negotiate with the Dialog4's creditors to
assume some of Dialog4's liabilities in lieu of making payments directly to
Dialog4. Dialog4 has since given us notice of default for non-payment and has
accelerated all amounts due.  On February 14, 2003, Dialog4 demanded the Company
register the 1,250,000 shares issued to Dialog4 for the purchase of the assets.
On April 29, 2003, the Company and Dialog4 entered formal Arbitral proceedings.
We are currently in arbitration and there is no assurance the company can
achieve a satisfactory settlement with Dialog4. (see Item 3 "Legal Proceedings"
elsewhere in this Report).

      On August 9, 2002, the Company agreed to purchase all existing inventory
of parts related to its Sountainer product from Solectron GmbH for a total price
of $829,328, payable in 24 equal monthly installments including interest.
Solectron had purchased the inventory pursuant to an agreement with Dialog4
approximately two years prior to the purchase of the assets of Dialog4 by the
Company.  The price was equal to the amount paid by Solectron for the inventory,
which the Company expects to realize from future sales of that inventory.  The
agreement settled a dispute between the Company and Solectron in which Solectron
claimed the Company became liable for the obligation of Dialog4 to purchase the
inventory when the Company acquired the assets of Dialog4.  The Company
maintains it did not undertake the obligation of Dialog4, but to settle the
dispute, agreed to purchase the inventory, which it will use in the manufacture
of Sountainer products.  We currently owe Solectron GmbH approximately $504,000
as of December 31, 2003 and $649,000 at December 31 ,2002. On January 20, 2004
we were able to renegotiate the terms to pay  to make monthly installments of
principal and interest in the amount of $25,000. The final installment will be
due October 15, 2005 in the amount of $15,681. The company is current with the
existing payment plan. As per the new payment terms the Company will be able to
reclassify $234,139 as long term debt in January 2004. As of December 31, 2003
the company has paid $214,211 in principal and $50,012 in interest. Mr.
Brentlinger has also signed a personal guarantee under the revised Settlement
Agreement. The Company further agreed to indemnify Mr. Brentlinger should he be
required to make any payment under this guarantee. An amount of $233,000 is
reported in other assets pending delivery of that amount of inventory by
Solectron.


7.    STOCKHOLDERS' EQUITY

During the second and third quarters of 2000, the Company sold in a private
placement, for $1.50 per share, 708,158 units of common stock and warrants under
a subscription agreement (the "Subscription Agreement") with accredited
investors.  Under the Subscription Agreement, each unit consists of one share of
the Company's common stock and one warrant (the "Class A Warrants") to purchase
at an exercise price of $1.75 per share one share of the Company's common stock
and one Class B Warrant (as defined).  The Class A Warrant may be exercised for
a sixty-day period following the registration of the shares issuable upon
exercise of the Class A Warrants. The holder of a Class A Warrant shall not have
the right to obtain a Class B Warrant if the Class A Warrant is not timely
exercised.

      On November 15, 2001, the Company extended the time in which the Class A
Warrants may be exercised by adding 10 days on to the sixty-day period following
the registration of the shares issuable.  Subsequently, on January 23, 2002, the
Company extended the exercise date for the Class A Warrants to February 23, 2002
while lowering the strike price from $1.75 to $1.00. Subsequently, on March 8,
2002 the Company issued 18,000 shares of unrestricted common stock in exchange
for 18,000 Class A Warrants at $1.00 per share. The A warrants have since lapsed
and are no longer exercisable.

                                       51
<PAGE>
      On January 18, 2002, the Company issued 1,250,000 shares of restricted
common stock to Dialog4 System Engineering GmbH pursuant to the asset sale and
purchase agreement.

      On January 24, 2002 the Company issued to Malibu Holdings, LLC.  50,000
shares of  restricted common stock in exchange for $50,000 of consulting
services rendered during the prior year.

      On November 4, 2002  the Company issued 18,750 shares of restricted common
stock to Ellen Brous, 18,750 shares of restricted common stock to Pipia Cophen &
Associates and 12,500 shares of restricted common stock to Debra Fiakas when we
engaged "HD Brous & Co., Inc." to advise and assist us in capital raising
efforts. Refer to Note 12 for a more information.

      On each of November 12, 2002, and December 9, 2002 the Company issued
5,016 shares of restricted common stock in connection with the employment
contract of Phil T. Zeni Sr., our Executive Vice President, Chief Operating
Office and Director.

      During the year in 2003 the Company issued 172,670 shares of
restricted common stock in connection with the employment contract of Phil T.
Zeni Sr., our Executive Vice President, Chief Operating Office and Director.

      On August 18, 2003, the Company issued 13,500 shares of restricted common
stock to Robert McMartin, our Vice President and Chief Financial Officer as
consideration for making two loans to the Company in 2002.

      On October 22, 2003, the Company issued 200,000 shares of restricted
common stock as compensation to Phillip T. Zeni, Sr. our Executive Vice
President, Chief Operating Office and Director for the May 19, 2003 loan he made
to the company.

                                       52
<PAGE>
8.    STOCK OPTIONS
      In May 1994, the Company's stockholders approved the Company's 1994 Stock
Option Plan, which set aside an aggregate of 120,000 shares of common stock for
which options may be granted to employees, officers, directors, and consultants.
Options are typically exercisable upon the grant date for up to three years at a
price equal to 100% of the fair market value at the date of grant.  There are no
options outstanding under this plan at December 31, 2003 and 2002.

      In June 1999, the Company's president was granted stock options, which
vested immediately, to purchase 1,000,000 shares over the next 5 years for $1.25
per share.  No options have been exercised under this grant.  Mr. Brentlinger
has committed to exercise his options, if necessary, in order to satisfy the
Company's debt payments, if operating cash flows are inadequate.

      On January 23, 2002, the Company's Board of Directors granted to its Vice
President, Secretary and Director, Gary D. Clarkson, an option which vested
immediately, to purchase 50,000 shares of restricted common stock at a purchase
price of $1.00 per share, exercisable prior to January 23, 2005. No options have
been exercised under this grant.

      On January 23, 2002, the Company's Board of Directors granted to its
Director, Carl E. Matthusen, an option which vested immediately, to purchase
50,000 shares of restricted common stock at a purchase price of $1.00 per share,
exercisable prior to January 23, 2005. No options have been exercised under this
grant.

      On January 23, 2002, the Company's Board of Directors granted to its Vice
President, Chief Engineer and Director, Robert A. Orban, an option which vested
immediately, to purchase 50,000 shares of restricted common stock at a purchase
price of $1.00 per share, exercisable prior to January 23, 2005. No options have
been exercised under this grant.

      On January 23, 2002, the Company's Board of Directors granted to its
Executive Vice President  Chief Operating Officer and Director, Phillip T. Zeni,
Sr., an option which vested immediately, to purchase 50,000 shares of restricted
common stock at a purchase price of $1.00 per share, exercisable prior to
January 23, 2005. No options have been exercised under this grant.

      If the options that were issued to the board of directors were recorded
under SFAS 123, "Accounting for Stock Based Compensation", using the Black
Scholes fair value model, net loss for the year ended December 31, 2002 would
have increased by approximately $125,000. Net loss for 2002 was $2,135,039. Had
the options been expensed, the net loss would have been $2,260,039.

      Had the options been expensed, net loss and loss per share would have been
as follows.

      Net loss as reported                                 ($2,135,039)
      Additional expense if options had been expensed         (125,000)
                                                           -----------
      Pro forma net loss                                   ($2,260,039)
                                                           ===========

      2002 loss per share basic and diluted, as reported        ($0.58)
      2002 loss per share basic and diluted, if options
        had been expensed                                       ($0.62)

                                       53
<PAGE>
9.   INCOME TAXES

The principal reasons for the difference between the income tax benefit
provision and the amounts computed by applying the statutory income tax rates to
the loss for the years ended December 31, are as follows:

                                                        2003            2002
                                                     ---------       ---------
     Federal tax at statutory rates                  ($130,800)      ($725,900)
     State tax at statutory rates                      (22,000)       (128,100)
     Permanent items                                    10,300          10,000
     Other                                                   0               0
     Increase in valuation allowance                   142,500         844,000
                                                     ---------       ---------
       Total                                                $0              $0
                                                     =========       =========

At December 31, deferred taxes represent the tax effect of temporary differences
related to:
                                                        2003            2002
                                                     ---------       ---------
     Current deferred taxes:
      Inventory capitalization                         $60,600         $71,800
      Inventory obsolescence reserve                   616,600         616,600
      Allowance for doubtful accounts                   13,300          43,300
      Warranty and other reserves                       48,800          48,800
      Accrued expenses                                  90,700          87,900
      Deferred tax valuation allowance                (830,000)       (868,400)
                                                     ---------       ---------
        Total                                               $0              $0
                                                     =========       =========

     Non-current deferred taxes:
      Goodwill amortization                          ($130,800)       $113,100
      Depreciation and amortization                    (54,600)        (52,300)
      Operating loss carry forward                   2,755,500       2,328,400
      Federal general business credit
        carry forward                                   65,400          65,400
      Deferred tax valuation allowance              (2,635,500)     (2,454,600)
                                                     ---------       ---------
        Total                                               $0              $0
                                                     =========       =========

At December 31, 2003 and 2002, valuation allowances totaling $3,465,500 and
$3,323,000, respectively, were recorded which related to, among other items,
federal and state net operating losses and federal general business credit carry
forwards for which the utilization is not reasonably assured.  Net operating
loss carryforwards of approximately $6,889,000 which expire through 2024, are
available for federal income tax purposes.

                                       54
<PAGE>
10.   SEGMENT REPORTING, SALES TO MAJOR CUSTOMERS AND EXPORT SALES

      The Company manufactures and distributes audio processing and Radio and TV
studio equipment.  The Company's primary end user market is radio and TV
stations and also the internet market.  The chief operating decision makers are
provided information about revenue generated by product line, with all products
having similar production processes, customers and distribution channels.  The
Company's long-lived assets are all located in the United States. Accordingly,
the Company operates in one segment.

      Sales for the years ended December 31, 2003 and 2002 were conducted
primarily through wholesale distributors and dealers. In 2003, one of our
largest customers, Harris Corporation, accounted for approximately 20% of net
sales. In 2002, Harris accounted for approximately 14% of net sales. Broadcast
Supply Worldwide accounted for just over 9% of our net sales for 2003,
representing a decrease of 1% over 2002. Our dependence on a small number of
relatively large customers increases the magnitude of fluctuations in operating
results particularly on a period to period, or period over period, comparison
basis.

      International sales in 2003 and 2002 totaled $7,761,388 and $6,200,809,
respectively, or approximately 63% and 58%, respectively, our total sales during
those years.  Prior to our acquisition of the assets of Dialog4 System
Engineering GmbH on January 18, 2002, we required that all export sales be paid
in U.S. currency. After the acquisition was completed, we require that sales
from German office be paid in either Euros or United States Dollars. All other
export sales are in U.S currency.


     Our export sales by region are as follows:

     Region                     2003       %           2002       %
     --------------------------------------------------------------
     Europe                  $3,783,060   49%        $3,191,977   51%
     Pacific Rim              2,511,406   33          1,629,428   26
     Latin and South America    344,713    4            532,844    9
     Canada and Mexico          798,980   10            656,169   11
     Other                      323,229    4            190,391    3
                             ----------  ----       ----------  ----
     Total                   $7,761,388  100%       $6,200,809  100%
                             ==========  ====       ==========  ====

11.   EMPLOYEE BENEFIT PLANS

      The Company maintains a 401(k) profit sharing plan (the "Plan") for the
benefit of all employees who meet certain eligibility requirements.  The Company
matches 50% of employee contributions up to a maximum contribution by the
Company of 3% of a participant's annual compensation.  Total annual
contributions to a participant's account may not exceed 25% of compensation.
Company contributions made to the Plan were $66,812 and $65,653 in 2003 and
2002, respectively.

      On August 24, 2001, the Company's Board of Directors approved a monthly
employee stock purchase plan to be effective September 1, 2001.  The plan is
offered to substantially all employees, including officers.  Employees may
purchase the Company's common stock through payroll deductions not exceeding
$250 per week.  A non-affiliated dealer on the open market purchases shares at
the market price.  During 2003 and 2002, the plan purchased 8,036 and 11,360
shares of the Company's common stock, respectively.

                                       55
<PAGE>
12.   GOING CONCERN

      We have reduced our net 2002 loss from $2,135,039 to $384,877 during 2003.
Despite this encouraging trend, our previous financial results have strained our
liquidity, causing us, in 2001 to renegotiate our $8.5 million loan agreement
with Harman.  Under the terms of our debt agreement with Harman International as
now in effect, Harman can demand at any time that we immediately pay in full the
outstanding balance of our debt. Should this happen, we would immediately be
forced to file for protection under Chapter 11 of the United States Bankruptcy
Code.  Our inability to pay the remaining $8.5 million in principal and $1.2 in
accrued interest to Harman, should payment be demanded, our difficulties in
meeting our financing needs and our negative working capital position have
resulted in our independent public accountants adding a "going concern" emphasis
paragraph to their report on our financial statements by including a statement
that such factors raise substantial doubt about our ability to continue as a
going concern.

      In addition to our efforts to reduce costs and increase sales, we are
currently seeking sources of long-term financing.  However, the inclusion of a
going concern emphasis paragraph by our independent accountants generally makes
it significantly more difficult to obtain trade credit or additional capital
through public or private debt or equity financings. We have renewed our
engagement with HD Brous & Co., Inc. to advise and assist us in capital raising
efforts. We cannot offer any assurances that we will be able to attract
additional capital or that additional financing, if obtained, will be sufficient
to meet our current obligations.  If we cannot meet our current obligations, our
ability to continue as a going concern will be jeopardized.

      Management for some time has been negotiating with Harman Acquisition
Corp., a wholly owned subsidiary of Harman International Industries, Inc., with
respect to restructuring the existing debt of the Company to Harman of
$8,482,000 in principal at December 31, 2003 bearing interest of 12% per annum.
If such a restructuring occurs under the terms presently being discussed, the
Company will need to make a principal payment of $1,000,000 (which can be made
in installments), following which the interest rate on the unpaid balances will
be reduced to 6% per annum retroactive to April 1, 2003. $3,500,000 of the
unpaid balance will be converted into 19% of the common stock of the Company,
and the remaining unpaid balance will be payable over five years in accordance
with a payment schedule.  No agreement has yet been entered into with Harman,
and if no agreement is reached, the principal balance of $8,482,000 plus
interest at the rate of 12% per annum will continue to be payable on demand.
There is no assurance that the Company can reach a final agreement with Harman
for restructuring of the debt, nor that the agreement, if entered into, will
contain the same terms presently being discussed. As of December 31, 2003, we
are in arrears on interest installments on the Harman obligation in an aggregate
amount of $698,984 (at a rate of 12% per annum).

      There can be no assurance that the Company's efforts will generate
adequate liquidity will be timely or successful. The accompanying consolidated
financial statements do not include any adjustments relating to the possible
future effects on the recoverability and classification of assets or the

                                       56
<PAGE>
amounts and classification of liabilities that might be necessary should the
Company file for protection under Chapter 11 and/or be unable to continue as a
going concern.


13.   COMMITMENTS AND CONTINGENCIES

Operating Leases

      The Company maintains its principal offices and warehouse in leased
facilities in San Leandro, California, under an operating lease which expires on
December 31, 2006.  The lease agreement provides for minimum monthly rental
payments ranging from $27,022 to $30,396.  The Company is also responsible for
the payments of (i) common area operating expenses (as defined), (ii) utilities,
and (iii) Real Estate taxes. The Company also maintains its principal corporate
offices and facilities in leased facilities in Tempe, Arizona, under an informal
operating lease which expires on December 31, 2005. The Company is also
responsible for the payments of (i) taxes and (ii) utilities.

      The Company leased space at 1330 West Auto Drive, Tempe, Arizona (the
"Building") beginning January 2, 2003 through November 30, 2003 from Formosa
International Systems Co., Inc.

      On November 26, 2003, the Company entered into a lease with a three year
option to purchase the manufacturing and office facilities at 1302 W. Drivers
Way, Tempe, AZ from Sheena 4626 LLC. The term of the lease is for 60 months
commencing on December 1, 2003. Pending the landlord's ability to vacate the
premises, we agreed to lease 6,285 square feet for the first month (at
approximately $4,399) and 8,067 square feet for the second month (at
approximately $5,646). We will lease the entire 13,008 square feet (at
approximately $9,105 per month) for months 3 though 12 of the term.
Subsequently, the monthly payments will increase at a rate of 3 % annually.
There is an option to purchase the property for $1,275,000 after the first 12
months of occupancy, increasing $25,000 each year for the subsequent years. We
hope to benefit from a potential increase in the Real Estate market.  This new
Tempe location houses our executive, administrative, sales, manufacturing and
research staff.

Future minimum lease payments relating to the above operating leases at December
31, 2003 are as follows:


                December 31,       Amount
                ------------       --------
                  2004             $457,023
                  2005              480,666
                  2006              498,733
                  2007              119,690
                  2008              112,725
                                   --------
                                 $1,668,837
                                 ==========

Rent expense amounted to $518,135 and $371,219 for the years ended December 31,
2003 and 2002, respectively. The office facility lease in Ludwigsburg, Germany
is a month-to-month lease for approximately 750 square feet for $2,700 a month.


Litigation:

Formosa International Systems Co., Inc.,

      The Company leased space at 1330 West Auto Drive, Tempe, Arizona (the
"Building") beginning January 2, 2003.  The owner of the Building, Formosa
International Systems Co., Inc., was also a tenant in the Building.  An informal
lease was executed which provided that the owner would vacate the Building upon
request and that the Company would pay rent partly in cash and partly in stock
of the Company (subject to compliance with Securities Laws).  The Company made
all payments of the cash portion of the rent, but refused to pay the stock
portion until the owner vacated the Building so the

                                       57
<PAGE>
Company could use all of the space it was renting.  The owner refused to vacate.
In addition, the owner requested the Company to execute a subordination
agreement with its lender on terms the Company found unacceptable and the
Company refused to execute it without modifications.  The owner then locked out
the Company for nonpayment of the stock portion of the rent on November 10,
2003.  The Company immediately sought and obtained a Temporary Restraining Order
("TRO") from the Superior Court of Maricopa County, Arizona requiring the owner
to allow the Company continued use of the Building, and the Company moved back
into the Building that day.

      The Company declared the lockout to be a default under the lease and
vacated the Building in late November, 2003, entering into the present lease for
a building located at 1302 West Drivers Way, Tempe, Arizona. The Company
thereafter amended its complaint in the Superior Court alleging breach of lease
and constructive eviction, seeking from the owner of the Building its actual
damages, which it alleges to be at least $100,000.  The owner of the Building
has counterclaimed for breach of lease, claiming damages of $177,500, and for
the allegedly wrongful conduct of the Company in refusing to execute the
subordination agreement requested by the owner, claiming unspecified damages.
The Company has denied the allegations of the counterclaim and the matter is
pending.


Dialog4

      On April 29, 2003, the Company was notified that Dialog4 filed a demand
for arbitration in Germany. On June 30, 2003, we gave notice of various claims
pertaining the representations and warranties made by Dialog4 in the Asset Sale
and Purchase Agreement. The Company then filed a formal statement of defense
along with counterclaims against Dialog4 on August 25, 2003, within the time
limits as by the Arbiter. Dailog4 filed its response on October 16, 2003. The
Company submitted a response on December 1, 2003. Dialog4 submitted a further
response on January 12, 2004, and amended its original demand for arbitration
with additional claims. On February 17, 2004, the Company filed a response.
There is no assurance that the Company can achieve a satisfactory settlement
with Dialog4.  If we are unable to do so, we will need to satisfy or settle the
demands of Dialog4 for payment under the original Asset Sale and Purchase
Agreement. The Company believes it has defenses and claims against Dialog4
arising from the asset sale. The acceleration of indebtedness by Dialog4
constitutes a default under the existing credit agreements between the Company
and Harman International, Inc. and would continue to constitute a default even
if our recent agreement is finalized with Harman relating to the restructuring
of the $8.5 million in notes that we currently owe Harman.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

      On May 8, 2002, Altschuler, Melvoin and Glasser LLP of California ("AM&G
of California"), the Registrant's independent public accountants, notified the
Registrant of its withdrawal as the Registrant's independent public accounting
firm.  The withdrawal of AM&G of California was necessitated by the departure of
that firm's partner in charge of audits of companies required to file periodic
reports with the Securities and Exchange Commission.  As a result of this
partner's departure, AM&G of California will no longer be engaging as
independent auditors for reporting companies. The Registrant engaged
Altschuler, Melvoin and Glasser LLP of Illinois ("AM&G of Illinois"), effective
as of May 8, 2002, to serve as the Registrant's independent public accountants.
Although AM&G of Illinois and AM&G of California are affiliated, they are
separate entities.
                                       58
<PAGE>
      Since the Registrant's engagement of AM&G of California on June 26, 2001,
there have been no disagreements between the Registrant and AM&G of California
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of AM&G of California, would have caused that firm to make
reference thereto in connection with its reports.

      Since the Registrant's engagement of AM&G of Illinois on May 8, 2002,
there have been no disagreements between the Registrant and AM&G of Illinois on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of AM&G of Illinois, would have caused that firm to make reference
thereto in connection with its reports


ITEM 8A. CONTROLS AND PROCEDURES

      Evaluation of disclosure controls and procedures: the Company maintains
disclosure controls and procedures designed to provide reasonable assurance that
the information required to be disclosed in the reports that it submits to the
Securities Exchange Commission is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC.  Our
management, with the participation of the chief executive officer and the chief
financial officer, has evaluated the effectiveness of its disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934) as of the end of the period covered by this
report.  Based on the evaluation, our chief executive officer and our chief
financial officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports it files or submits under the
Exchange Act.

      Changes in internal controls: There were no significant changes in the
Company's internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) subsequent to
the date of the Company's evaluation that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.

                                       59
<PAGE>
                                    PART III

ITEM  9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS  AND  CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Our directors, executive officers and key employees, and their ages as of
March 30, 2004 are:

     Name                           Age     Positions
     --------------------------     ---     ------------------------------------
     Charles Jayson Brentlinger     49      Chief Executive Officer, Chairman of
     the Board and President

     Berthold F. Burkhardtsmaier    47      Director

     Gary D. Clarkson               51      Secretary, Vice President and
                                            Director

     Robert A. Orban                58      Vice President, Chief Engineer and
                                            Director

     Carl E. Matthusen              60      Director

     Phillip T. Zeni, Sr.           62      Executive Vice President, Chief
                                            Operating Officer and Director

     Peter J. Lee                   49      Vice President of Orban European
                                            Operations

     Robert W. McMartin             42      Vice President, Treasurer and Chief
                                            Financial Officer

     Greg J. Ogonowski              48      Vice President of New Product
                                            Development

DIRECTORS

     Charles Jayson Brentlinger has served as our President, Chief Executive
Officer and a director since June 1999, and as our Chairman of the Board since
October 1999.  He was formerly the President and owner of Rainbow Broadcasting
Inc. and Brentlinger Broadcasting, Inc. In May 2000, Mr. Brentlinger sold all of
his broadcast ownership interests to his family. Mr. Brentlinger has over 27
years of experience in the radio industry.  He has worked as a broadcast
consultant for nearly every radio station in the Phoenix area. Mr. Brentlinger
formed his own broadcast engineering firm in 1986.  Some of his many clients
have included Scripps Howard Broadcasting, Adams Radio Communications
Corporation, Adams Satellite/ABC, Transtar Radio Network, Pulitzer Broadcasting
Phoenix, Duchossois Communications Corporation, Sundance Communications
Corporation, Arizona Radio and Television Corporation, Cook Inlet Corporation,
First Media Corporation, Duffey II Corporation and TransCOM/Transcolumbia
Corporation.  Mr. Brentlinger attended DeVry Institute of Technology and the
University of Arkansas at Little Rock.  He is a member of the Society of
Broadcast Engineers and National Association of Broadcasters.  He holds a FCC
General Radiotelephone license, valid for life.

     Berthold F. Burkhardtsmaier has served as a Director since January 2002 and
served as our Vice President of European Operations from January 2002 until
February 2003. In 1992, he founded Dialog4 System Engineering GmbH in
Ludwigsburg, Germany and served as its Managing Director for 10 years. During
this time, he introduced the "MusicTAXI" and "Soundtainer" product lines,
established a world-wide product distribution network and received ISO-9001
certification in 1998. From 1989 to 1992, he

                                       60
<PAGE>
was employed by Shure Bros., Inc. to establish their European Subsidiary in
Heilbronn, Germany and serve as its Managing Director. From 1986 to 1989, he was
employed by Harman Deutschland in Germany as a product manager for the JBL and
Shure product lines and was responsible for establishing new market segments in
cinema, professional sound reinforcement and industrial sound. In 1986, Mr.
Burkhardtsmaier received a masters degree in electromechanical engineering from
the Technical University in Munich, Germany where he specialized in acoustics
and communication systems.

     Gary D. Clarkson is one of our founders and has served as our Vice
President since August 2000, our Secretary since October 1999 and as a director
since our incorporation in 1978.  He also served as our Treasurer from August
2000 to June 2001.  Following the death of our other founder, Mr. Ronald R.
Jones, Mr. Clarkson served as our Chief Executive Officer,  President and
Chairman from January 1998 to June 1999.  Mr. Clarkson began his broadcasting
career by serving in assistant and chief engineering positions at several
Phoenix area radio stations from 1971 until 1978.  Since our founding in 1974,
Mr. Clarkson has devoted substantially all of his business efforts to our
business and served as our design engineer from 1974 to 1998. Mr. Clarkson holds
an associate degree in electronics engineering technology from DeVry Institute
of Technology, Phoenix, Arizona.

     Christopher M. Kampmeier has served as a director since April 2003. Since
1996, he has served as Director of Programming for the Clear Channel
Communications, Inc. operations in Orlando, Florida where he directs the
programming of 5 FM and 2 AM radio stations and supervises a staff of 63
full-time and approximately 50 part-time employees, with an annual budget of
over $7.25 million. In 2002, he was promoted to Regional Vice President of
Programming for the central and northern Florida regions, adding oversight
responsibility of 22 additional stations to his duties. Prior to his employment
with Clear Channel Communications, Inc., he held Program Director and Vice
President of Programming positions in New York City, Los Angeles, Phoenix and
Tampa. He also held General Manager positions in Salt Lake City, Utah and New
Haven, Connecticut.

     Robert A. Orban has served as a Vice President since June 2001 and director
since May 2000.  In 1975, he co-founded Orban Associates, Inc. with his late
business partner, Mr. John Delantoni.  Since that time, Mr. Orban has served as
Chief Engineer for Orban Associates (and its successor, Orban, Inc.) where he
has concentrated on the theoretical support for and subjective tuning of that
company's products.  In 1975, he introduced Orban Associates' standard-setting
OPTIMOD line of audio processors, including the OPTIMOD-FM processors which are
among the most widely used FM processors in the world.  Mr. Orban is the holder
of 25 patents, and he has been widely published in such publications as the
Journal of the Audio Engineering Society and the NAB Engineering Handbook.  In
1993, Mr. Orban shared (with Dolby Labs) a Scientific and Technical Award from
the Academy of Motion Picture Arts and Sciences, and in 1995 he received the
Radio Engineering Achievement Award from the National Association of
Broadcasters.  Mr. Orban received a B.S. in Electrical Engineering from
Princeton University in 1967 and an M.S. in Electrical Engineering from Stanford
University in 1968.

     Carl E. Matthusen has served as a director since February 1988.  Mr.
Matthusen began his career in the broadcast industry in 1963 serving in various
capacities at seven radio broadcast stations in Arizona, Wisconsin, Minnesota
and Virginia.  Since 1978, he has been General Manager of KJZZ-FM, KBAQ-FM and
Sun Sounds Radio Reading Service operated by Rio Salado College in Mesa,
Arizona.  Mr. Matthusen served on the board of directors of National Public
Radio from 1990 to 1996, and was chairman of the board from 1992 to 1996. Since
1999, Mr. Matthusen has served as a member of the board of the International
Association of Audio Information Services.


                                       61
<PAGE>

     Phillip T. Zeni has served as our Executive Vice President and Chief
Operating Officer since October 2002 and as a director since May 2000.  Mr.
Zeni's professional and business career spans more than three decades and
includes ownership and senior management positions in consulting, publishing and
broadcasting.  Since 1993, he has served as President of Transcontinental
Publishing, Inc., a publishing house specializing in international and regional
trade publications for the construction industry. Mr. Zeni is also Executive
Vice President of Palmieri USA, an importer and distributor of construction
equipment, and the owner and Managing Director of PhysicianNet.com, a
six-year-old Web site that serves the medical community. Previously, Mr. Zeni
served as managing partner of a Dallas-based group of broadcasting stations and
as Director of Business Development for NBC Radio and Westinghouse-Group "W"
Broadcasting in Chicago.  He has also served as a Vice President of Multimedia
Communications, and as general manager of two of that company's major
broadcasting properties in the South.  Mr. Zeni has presented seminars for the
National Association of Broadcasters and the Radio Advertising Bureau.  Mr. Zeni
holds a B.A. from the University of Illinois.  He has served as an adjunct
professor at the University of Arkansas at Little Rock and at Millikin
University in Decatur, Illinois.  Mr. Zeni has also guest lectured at the
University of Wisconsin, Michigan State University, the University of Illinois
and Arkansas State University.  Mr. Zeni has been active in a wide range of
charitable, civic and social organizations throughout his career.  His time in
public service included serving on the staff of Illinois Governor Richard
Ogilvie, followed by two White House assignments during the Ford and Carter
administrations.  Currently, Mr. Zeni serves as President and on the board of
directors of the University Club of Phoenix.


EXECUTIVE OFFICERS

     Peter J. Lee has served as our acting Vice President of Orban European
Operations since his appointment by the Executive Committee of the Board of
Directors of Circuit Research Labs, Inc. on July 23, 2002. He joined our Company
as a result of the Asset Sale and Purchase Agreement of Dialog4 on Janaury 18,
2002.  From 1997 to 2000, he was employeed by 360 Systems Europe as their
Managing Director and Sales Manager. From 1994 to 1997, he was employed by
Foxtex Corporation of America as their Managing Director and Sales Manager.

     Robert McMartin has served as our Treasurer since January 2002, and as our
Vice President and Chief Financial Officer since June 2001.  Prior to joining
us, Mr. McMartin served as the Chief Financial Officer of IMSure Network, Inc.,
a technology company providing eCommerce Internet technology products, from
March to December 2000.  From November 1999 to March 2000, Mr. McMartin served
as the Director of Finance of Fox Animation Studios, Inc. in Phoenix, Arizona.
Prior to that time, he was Corporate Controller of Trapeze Software Group, Inc.,
a software solutions manufacturer and developer, from April 1998 to November
1999.  Mr. McMartin was employed as a staff accountant for Cotton Parker
Johnson, L.L.P. from June 1998 to October 1998, and held a similar position with
The O'Connor Group, P.C. from November 1997 to May 1998.  From 1992 to 1995, Mr.
McMartin served as Senior Financial Analyst for Blackwell Financial, Inc., a
capital investment firm. Mr. McMartin holds a B.S. in Finance from Westminster
College and a Post Baccalaureate Certificate in Accountancy from Arizona State
University.

     Greg J. Ogonowski has served as our Vice President of New Product
Development since October 2000.  In 1975, Mr. Ogonowski founded Gregg
Laboratories, an audio processing equipment manufacturing company.  From 1998 to
October 2000, Mr. Ogonowski served as Technical Director for KBIG/KLAC in Los
Angeles, California, where he designed and installed a computer network and
digital audio delivery system that resulted in KBIG/KLAC being one of the first
radio stations to directly stream audio to the Internet with internal encoders
and servers.  Mr. Ogonowski has also been directly responsible for other
technical facilities at many major market radio stations, including stations in
Detroit, Dallas and Seattle. As technical director for KTNQ/KLVE, Heftel
Broadcasting, Los Angeles, from 1985 to 1991, Mr. Ogonowski relocated studio
facilities and constructed a new efficient alternative use AM transmission
facility.  In 1984, Mr. Ogonowski founded Modulation Index, a broadcast
engineering consulting company.  He has conducted studies on broadcast
modulation measurement instrumentation and FM modulators, including STLs and
exciters. As a result of these studies, Mr. Ogonowski has developed
modifications for popular monitors, STLs and exciters to improve their dynamic
transient accuracy and competitiveness.  A technical paper was presented before
the National Association of Broadcasters regarding these findings.

                                       62
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC") initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company.  Such reports are filed on Form 3, Form
4, and Form 5 under the Exchange Act.  Directors, executive officers and
greater-than-10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

     Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 3, 4, or 5
were required for those persons, the Company believes that all directors,
executive officers, and greater-than-10% beneficial owners have complied with
all Section 16(a) filing requirements applicable to such persons or entities
during the 2003 fiscal year with the exception of the following: (1) Gary D.
Clarkson, the Company's Vice President and Secretary, failed to file his Form 5
until April 12, 2004; on such Form 5, Mr. Clarkson reported the acquisition of
1,102.59 shares of the Company's common stock under the Company's Employee
Monthly Stock Investment Plan; (2) Charles Jayson Brentlinger, the Company's
President and Chief Executive Officer, failed to file his Form 5 until April 12,
2004; on such Form 5, Mr. Brentlinger reported the acquisition of 2,197.69
shares of the Company's common stock under the Company's Employee Monthly Stock
Investment Plan; and (3) Robert W. McMartin, the Company's Vice President,
Treasurer and Chief Financial Officer, failed to file his Form 5 until April 12,
2004; on such Form 5, Mr. McMartin reported the acquisition of 2,201.69 shares
of the Company's common stock under the Company's Employee Monthly Stock
Investment Plan.

                                       63
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION.

     The following table sets forth information concerning the annual and
long-term compensation paid or accrued to the Chief Executive Officer and the
four highest compensated executive officers whose salary and bonus exceeded
$100,000 during 2003.

<TABLE>
<CAPTION>
                              Summary Compensation Table

                                                             Securities
Name and Principal          Fiscal                           Underlying      All Other
Position                     Year   Salary        Bonus      Options (#)(1)  Compensation
---------------------------  ----   -----------   ---------  --------------  ------------
<S>                          <C>    <C>           <C>        <C>             <C>
Charles Jayson Brentlinger   2003   $173,421         -            -          $158,390(3)
President, Chief Executive   2002    170,594         -            -                -
 Officer and Chairman        2001    169,739         -       1,365,005(2)
 of the Board

Robert A. Orban              2003   $178,566         -            -           $93,611(5)
 Vice President and          2002    178,566         -          50,000(4)          -
 Chief Engineer              2001    178,093         -            -                -

Phillip T. Zeni, Sr.         2003   $174,998         -          50,000(4)     $86,306(6)
 Executive Vice President    2002     33,653(8)
 and Chief Operating
 Officer

Peter J. Lee                 2003   $136,862
 Vice President of Orban     2002    117,437
 European Operations

Greg J. Ogonowski            2003   $150,000         -            -            $4,000(7)
 Vice President of New       2002    150,000         -            -                -
 Product Development         2001    149,627         -            -                -

</TABLE>


(1) On July 7, 2000, the Board of Directors declared a one hundred percent stock
dividend effective as of August 15, 2000, payable to record holders of our
common stock as of July 31, 2000.  The number of shares of our common stock
underlying options reflects this stock dividend.

(2) Represents options received by Mr. Brentlinger pursuant to the Stock
Purchase Agreement and options received after giving effect to the anti-dilution
provisions of the Stock Purchase Agreement.  Pursuant to the Stock Purchase
Agreement, Mr. Brentlinger received a five-year option to purchase 1,000,000
shares for $1.25 per share.  This option expires on September 30, 2004.  No
options have been exercised under this grant. For a discussion of the
anti-dilution provisions, see Item 12 Certain Relationships and Related
Transactions - Transactions with Management.

(3) $143,990 represents compensation to Mr. Brentlinger for signing personal
guarantees in connection with the Dialog4 Asset Sale and Purchase Agreement and
the settlement agreement between Solectron and the Company,  see item 6 in Notes
to Consolidated Financial Statements. $45,961 and $98,029 represents
compensation paid in 2002 and 2003, respectively. The remaining 14,400
represents car allowance.

(4) Represents options granted to this person by the Board of Directors on
January 23, 2002. The options, which vested immediately, are exercisable prior
to January23, 2005 at a purchase price of $1.00 per share. No Options have been
exercised under this grant..

(5) Represents compensation associated with Mr. Orban's Employment agreement.,
Please see exhibit number 10.18 previously filed on form 10KSB for the fiscal
year ended December 31, 2000.  Mr. Orban earned $10,771, $28,980 and 53,860 for
the years ended 2001, 2002, and 2003, respectively.

(6) $60,000 of the $93,611 represents restricted stock transferred as part  of a
loan transaction executed May 19, 2003.  This transaction is further described
in Item 5 in The Notes to Consolidated Financial Statements under Stockholder
notes. $7,500 represents cash consideration for the previously discussed
stockholder note.  $9,306 represents interest accrued relating the same note.
Mr. Zeni further received $9,000 for car allowance and $500 for 2002 board
meeting  fees.

(7) Represents consideration for Mr. Ogonowski's engineering and consulting
company (Modulation Index),  of  which he is the owner.

(8) Represents Mr. Zeni's compensation from September 30, 2002 to December 31,
    2002.

                                        64
<PAGE>

COMPENSATION OF DIRECTORS

     We pay our directors (other than directors who are also employees) for
their service.  Each director receives $100 for each board meeting and committee
meeting attended, either in person or by telephone. During the year ended
December 31, 2003, outside directors were paid a total of $1,200 for attendance
at board meetings.


EMPLOYMENT CONTRACTS

     We have an employment agreement with our President, Chief Executive Officer
and Chairman of the Board, Charles Jayson Brentlinger.  This agreement commenced
on January 1, 2002, and continues through May 31, 2005 unless earlier terminated
by the Company for cause.  The agreement will continue in effect after May 31,
2005 unless earlier terminated by either party. Pursuant to the agreement, Mr.
Brentlinger will serve on a full-time basis as our President and Chief Executive
Officer.  The agreement provides that Mr. Brentlinger will receive an annual
base salary of not less than $175,000. The agreement includes provisions
relating to other customary employee benefits and the confidentiality of our
proprietary information.

      We have an employment agreement with our Vice President and Chief
Engineer, Robert A. Orban.  The agreement is dated as of May 31, 2000, and has a
five-year term, unless otherwise earlier terminated by either party. Pursuant to
this agreement, Mr. Orban is employed on a full-time basis as Chief Engineer of
our wholly owned subsidiary, CRL Systems, Inc. doing business as Orban.  The
agreement provides that Mr. Orban will receive an annual base salary of
$178,560, subject to increase annually based upon changes in the consumer price
index.  Mr. Orban may also receive an annual bonus based on the net sales of
Orban products.  The agreement includes provisions relating to other customary
employee benefits, the confidentiality of our proprietary information and Mr.
Orban's assignment to Circuit Research Labs, Inc. of inventions conceived or
developed by Mr. Orban during the term of the agreement.

     We have an employment contract with our acting Vice President of Orban
European Operations. The contract is dated as of May 1, 2000 and may be
terminated by either party with two weeks prior written notice. Under the
contract, Mr. Lee is employed full-time as International Sales Director, with
the exception of Germany, by Dialog4 System Engineering Gmbh. The contract
provides that Mr. Lee will receive an annual base salary of 106,500 DM and an
additional monthly commission of 0.5% based on invoiced sales in his allocated
sales areas. For annual sales exceeding 2 million DM, the commmission will
increase to 1.5%; for sales exceeding 2.5 million DM, the commission will
increase to 2.0%; for sales exceeding 3.0 million DM, the commission will
increase to 2.5%. The agreement includes provisions relating to other customary
employee benefits and the confidentiality of our proprietary information.

     We have an employment agreement with Greg J. Ogonowski, our Vice President
of New Product Development.  This agreement commenced on January 1, 2002 and
continues through May 31, 2005 unless earlier terminated by the Company for
cause.  The agreement will continue in effect after May 31, 2005 unless earlier
terminated by either party.  Pursuant to this agreement, Mr. Ogonowski will
serve on a full-time basis as our Vice President of New Product Development. The
agreement provides that Mr. Ogonowski will receive an annual base salary of not
less than $150,000.  The agreement includes provisions relating to other
customary employee benefits and the confidentiality of our proprietary
information.

                                        65
<PAGE>


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table presents information concerning the beneficial
ownership of the shares of our common stock as of March 30, 2004, for each of
our directors and named executive officers, all directors and executive officers
as a group and each person known by us to be the beneficial owner of more than
five percent of our common stock.


     Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities.  Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each shareholder identified in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the shareholder.  Shares of common stock
subject to options and warrants that are exercisable or exercisable within 60
days of March 30, 2004 are considered outstanding and beneficially owned by the
person holding the options or warrants for the purpose of computing the
percentage ownership of that person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.


                                                       Number of
                                                       Shares         Percent
                                                       Beneficially     of
Name of Beneficial Owner              Title of Class   Owned(1)       Class(2)
---------------------------------     --------------   ---------      ------
Directors and Executive Officers:
 Charles Jayson Brentlinger(3)(4)     Common Stock     2,189,018      39.5%
 Berthold Burkhardtsmaier(5)          Common Stock     1,250,000      30.0%
 Gary D. Clarkson(6)                  Common Stock        52,033       1.2%
 Christopher M. Kampmeier             Common Stock        20,878         *
 Carl E. Matthusen(6)                 Common Stock        50,000       1.2%
 Robert A. Orban(6)                   Common Stock        66,600       1.6%
 Phillip T. Zeni, Sr.(6)              Common Stock       452,153      10.7%
 Peter J. Lee                         Common Stock             0         0
 Robert McMartin                      Common Stock        17,563         *
 Greg J. Ogonowski                    Common Stock         6,666         *
 All directors and executive
   officers as a group (10 persons)   Common Stock     4,104,910      71.5%

5% Holders:
 Jayson Russell Brentlinger(7)(8)     Common Stock     1,450,000      25.8%
 Dialog4 System Engineering GmbH(5)   Common Stock     1,250,000      30.0%
 Cornelia Burkhardtsmaier(5)          Common Stock     1,250,000      30.0%
 Friedrich Maier(5)                   Common Stock     1,250,000      30.0%



Unless otherwise noted, the address of each person named in the table is 1302
West Drivers Way, Tempe, Arizona 85284.

*   Less than 1%.

(1) On July 7, 2000, our Board of Directors declared a one hundred percent stock
dividend effective as of August 15, 2000, payable to record holders of our
common stock as of July 31, 2000.  The number of shares of our common stock
beneficially owned by each shareholder listed reflects this stock dividend.  The
inclusion herein of any shares of common stock does not constitute an admission
of beneficial ownership of such shares, but are included in accordance with
rules of the Securities and Exchange Commission.


                                        66
<PAGE>

(2) On the basis of 4,172,533 shares of common stock outstanding as of March 30,
2004.

(3) Includes 1,365,005 shares subject to exercisable options granted to Mr.
Brentlinger pursuant to the Stock Purchase Agreement that we entered into with
him on June 23, 1999.  Under the Stock Purchase Agreement, we granted Mr.
Brentlinger a five-year option to purchase 1,000,000 shares of our common stock
at an exercise price of $1.25 per share.  This option was exercisable upon its
grant, and expires on September 30, 2004.  No options have been exercised under
this grant.  On January 16, 2002, Mr. Brentlinger assigned 200,000 of these
options to his father, Mr. Jayson Russell Brentlinger. Mr. Brentlinger has
acquired an additional 565,005 options pursuant to anti-dilution modifications
made to the Stock Purchase Agreement by the Board of Directors on May 15, 2001.
Such anti-dilution modifications are retroactive to June 23, 1999.

(4) Includes 498,682 shares owned by C. Jayson Brentlinger Family Limited
Partnership. Mr. Brentlinger is deemed to have direct beneficial ownership of
the shares owned by C. Jayson Brentlinger Family Limited Partnership based on
his status as General Partner and Trustee of C. Jayson Brentlinger Family
Limited Partnership.  The address of C. Jayson Brentlinger Family Limited
Partnership is 1302 West Drivers Way, Tempe, Arizona 85284.

(5) Based on the information provided in the Schedule 13D/A, Amendment No. 1,
filed jointly by Dialog4 System Engineering GmbH ("Dialog4") and Berthold
Burkhardtsmaier, Cornelia Burkhardtsmaier, and Friedrich Maier (collectively,
the "Shareholders") with the Securities and Exchange Commission on January 6,
2003.  The Shareholders are deemed to have direct beneficial ownership of the
shares owned by Dialog4 based on their status as controlling shareholders of
Dialog4.  The address of Dialog4 and the Shareholders is Dialog4 System
Engineering GmbH, c/o Haver&Mailander, att. Dr. Kessler, Lenzhalde 83-85,
Stuttgart, Germany D-70182.  For a discussion of our acquisition of the assets
of Dialog4 and the shares issued to Dialog4 in connection with the acquisition,
see Item 1 Description of Business - Recent Events.

(6) Includes 50,000 shares subject to immediately exercisable options granted to
this person by the Board of Directors on January 23, 2002.  The options have an
exercise price of $1.00 per share and expire on January 23, 2005.  No options
have been exercised under this grant.

(7) Includes 200,000 shares subject to immediately exercisable options assigned
to this person by his son, Charles Jayson Brentlinger, on January 16, 2002 (see
Note 3 above).  The options have an exercise price of $1.00 per share and expire
on September 30, 2004.  No options have been exercised under this grant.

(8) Includes 1,250,000 shares subject to immediately exercisable options granted
to this person by the Board of Directors on January 23, 2003.  The options have
an exercise price of $0.55 per share and expire on January 23, 2006.  No options
have been exercised under this grant. The address of Mr. Jayson Russell
Brentlinger is 7434 East Stetson Drive, Suite 245, Scottsdale, Arizona 85251.

                                        67
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions with Management

     On June 23, 1999, we entered into a Stock Purchase Agreement with Mr.
Brentlinger, our current President, Chief Executive Officer and Chairman of the
Board.  On September 30, 1999, pursuant to the Stock Purchase Agreement, Mr.
Brentlinger purchased 375,000 authorized but previously unissued shares of our
common stock for $1.525 per share, or $571,875. (All amounts of shares and
purchase prices reported in this item have been adjusted to reflect the effects
of a one for one stock dividend paid by us on August 15, 2000 to record holders
of our common stock as of July 31, 2000.)  Pursuant to the Stock Purchase
Agreement, Mr. Brentlinger also purchased all of the shares of common stock
owned by Mr. Clarkson, our current Secretary, consisting of 242,624 shares, also
for $1.525 per share. Mr. Brentlinger agreed to purchase an additional 342,500
shares of our authorized but previously unissued common stock on or before
September 30, 2000, for a purchase price of $1.25 per share.  Following an
extension of the purchase deadline, Mr. Brentlinger fulfilled his obligation to
purchase these shares on February 8, 2001. Pursuant to the Stock Purchase
Agreement, Mr. Brentlinger also received a five-year option to purchase an
additional 1,000,000 shares for $1.25 per share.  This option expires on
September 30, 2004.  On May 15, 2001, the Board of Directors retroactively
amended the Stock Purchase Agreement to include anti-dilution provisions with
respect to this option.  The anti-dilution provisions are triggered in the event
that the Company (1) declares or pays a stock dividend, (2) subdivides its
outstanding shares of common stock, (3) combines its outstanding shares of
common stock, (4) issues any shares of its common stock in a reclassification or
reorganization of the common stock, or (5) issues authorized but previously
unissued shares of its common stock as payment for the stock or assets of
another entity.  Our Board of Directors took this action at the request of Mr.
Brentlinger who wished to preserve his ownership percentage of our common stock
which, absent this action on the part of the Board, would decrease as a result
of our issuance of common stock in connection with our then-likely acquisition
of the assets of Dialog4 System Engineering GmbH, which acquisition was
consummated on January 18, 2002 (see Item 1, Description of Business-Recent
Events).  Mr. Brentlinger participated in the Board's discussions concerning
this matter, but did not take part in the final Board vote to approve the
action.

      Mr. Brentlinger loaned us $195,000 in a short-term non-interest bearing
advance during the second quarter of 2000, to assist us in the purchase of the
assets of Orban, Inc.  On November 30, 2000, Mr. Brentlinger purchased 156,000
shares of our common stock for $1.25 per share in partial fulfillment of his
contractual obligation to purchase 342,500 shares of our common stock pursuant
to the Stock Purchase Agreement.  Mr. Brentlinger paid for these 156,000 shares
by cancellation of the debt we owed to him for the $195,000 advance. On February
8, 2001, Mr. Brentlinger purchased 26,500 shares of our common stock for $1.25
per share thus fulfilling his contractual obligation to purchase 342,500 shares
of our common stock pursuant to the Stock Purchase Agreement.

      We had a one-year employment and consulting agreement with James Seemiller
and ATB Broadcasting Corporation, a labor management consulting company of which
Mr. Seemiller is the owner and President.  The agreement, which was dated as of
March 9, 2001, was terminated effective as of January 31, 2002. Pursuant to the
agreement, Mr. Seemiller served as our Chief Financial Officer and Vice
President of Sales, Marketing and New Business Development at an annual base
salary of approximately $111,000. Additionally, the agreement provided for the
payment of annual consulting fees of approximately $24,000 to ATB Broadcasting.

      On January 23, 2003, Charles Brentlinger, the father of the Company's
President, Jayson Brentlinger, loaned the Company $100,000 for its short term
working capital needs.  The loan was repaid in 2003, without interest. To induce
Charles Brentlinger to make the loan, the Company issued options to him to
purchase 1,250,000 shares of common stock of the Company for a purchase price of
$0.55 per share, the market price of the shares on the date the option was
issued.  Charles Brentlinger may exercise the option at any time during the next
3 years.  As of this time, he has not exercised any of these options.

                                       68
<PAGE>
ACQUISITION OF ORBAN, INC.

      On May 31, 2000, we acquired the assets of Orban, Inc., a wholly owned
subsidiary of Harman International Industries, Inc., including the rights to the
name "Orban."  Including the $500,000 previously paid to Harman as
non-refundable deposits in 1999, the total stated purchase price was $10.5
million, of which $2 million was paid in cash and the balance of which was paid
by means of a combination of short-term and long-term promissory notes that we
issued to the seller.  In order to raise the $2 million cash necessary for the
purchase, we sold approximately $1,171,000 in common stock and warrants through
a private placement, and we mortgaged our Tempe, Arizona office building for
$335,000.  We also received a $150,000 advance from our majority shareholder,
Mr. Brentlinger.  We obtained the remainder of the purchase price from cash on
hand.  The seller financing consisted of a $3.5 million short-term note and a $5
million long-term note payable to Harman.

     We received several extensions on the long-term and short-term notes.
First, in exchange for $150,000 cash and an increase in the interest rates to 12
percent per annum for both notes, Harman extended the maturity date of the
short-term note to November 30, 2000. The maturity date of the short-term note
was subsequently extended several times without fees or other significant
changes to the original terms of the note and is due April 30, 2002.
Additionally, the first principal payment on the long-term note of $250,000,
originally due March 31, 2001, was extended to September 30, 2001, with the
remaining quarterly principal payments deferred until April 30, 2002.

     On October 1, 2001, we entered into an Amendment to Credit Agreement with
Harman under which both the long-term and the short-term notes were amended and
restated.  Under the Amended Credit Agreement, both promissory notes were
converted to demand notes payable on the demand of Harman or, if no demand is
sooner made, on the dates and in the amounts specified in the Amended Credit
Agreement.  Interest only payments remain payable from time to time for both
notes and are also due on demand.  Additionally, under the Amended Credit
Agreement, the first principal payment on the long-term note of $250,000, the
due date of which had been extended to September 30, 2001, was increased to
$1,250,000 and is now due April 30, 2002, unless Harman demands payment at an
earlier date.  Interest has been paid according to the scheduled due dates.

     In addition to the stated purchase price, we issued to Harman warrants to
purchase 1,000,000 shares of our common stock, exercisable for $2.25 per share.
The warrants have a three-year term and can be exercised either (i) by payment
in cash, (ii) by reducing the amount of the unpaid principal on the long-term or
short-term note, or (iii) by any combination of (i) and (ii).  We obtained an
independent valuation of the warrants in November 2000 from Houlihan Valuation
Advisors which valued the warrants at $1,050,000 as of May 31, 2000. When
combined with the cash purchase price, this results in a total purchase price of
Orban's assets of $11,550,000. As part of the acquisition, we also purchased the
rights to the name "Orban" and our Orban division is currently operating under
that name. These warrants expired May 31, 2003.

      In March 2003, we and Harman entered into a letter of intent to further
amend our agreement with Harman. The letter agreement and conditions to the
amendment are discussed under Item 1 of this report.

OTHER

     We issued $205,000 in long-term debt to one of our shareholders, Mr. Glenn
Serafin, in consideration for his role in the acquisition of the net assets of
Orban.  The promissory note that evidences our debt to Mr. Serafin bears
interest at 7.5 percent per annum, with principal and interest due monthly
beginning August 1, 2000 and continuing for four years.  We also incurred fees
of $97,500 to Mr. Serafin for arranging the purchase financing of Orban, the
total of which was due on May 14, 2001, but has since been extended to August
14, 2001.  On August 10, 2001, the note was converted to equity at the market
price of $1.05 per share.


                                       69
<PAGE>
     On January 18, 2002, we acquired the assets of Dialog4 System Engineering
GmbH, a worldwide leader in ISO/MPEG, audio, ISDN, satellite transmission,
networking and storage. As part of the acquisition the company entered into an
employment agreement with Berthold Burkhardtsmaier where he will serve on a
full-time basis as Vice President of European Operations and as a member of the
Company's board of Directors. Subsequently, the Company amended the Asset Sale
and Purchase Agreement where Mr. Burkhardtsmaier acts in the capacity of both
the Managing Director of Dialog4 System Engineering GmbH and as Vice President
of European Operations for Orban Europe. The agreement extended the terms of
payment from 10 months to 20 months reducing the monthly installments to $37,500
while adding interest on the remaining unpaid principal at a rate of 10 percent
per annum with monthly principal and interest payments due on the 20th day of
each month starting April 20, 2002.

                                       70
<PAGE>
                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

      The following is a list of the consolidated financial statements of
Circuit Research Labs, Inc. included at Item 7 of Part II of this Form 10-KSB.

      Financial Statements:
      ---------------------                                      Page
                                                                -----
Independent Auditors' Report                                      36
Consolidated Financial Statements:
  Consolidated Balance Sheets - December 31, 2003 and 2002        37
  Consolidated Statements of Operations -
    For the Years Ended December 31, 2003 and 2002                39
  Consolidated Statements of Stockholders' Equity -
    For the Years Ended December 31, 2003 and 2002                40
  Consolidated Statements of Cash Flows -
    For the Years Ended December 31, 2003 and 2002                41
  Notes to Financial Statements - December 31, 2003 and 2002      43


     (a)  Exhibits.

Exhibit
Number    Description

2.1(1)    Asset Sale and Purchase Agreement, dated as of November 16, 2001,
          among  Dialog4  System  Engineering  GmbH, Berthold Burkhardtsmaier,
          Cornelia Burkhardtsmaier, Friedrich Maier, Circuit Research Labs, Inc.
          and CRL Systems, Inc.
3.1(2)    Restated Articles of Incorporation of the Company
3.1a(2)   Articles of Amendment to the Company's Restated Articles of
          Incorporation
3.1b(2)   Articles of Amendment to the Company's Restated Articles of
          Incorporation
3.2(3)    Bylaws of the Company
4.1(4)    Warrant to Harman Acquisition Corp. (formerly known as Orban, Inc.),
          dated as of May 31, 2000
4.2(5)    Form of Class A Stock Purchase Warrant dated as of May 30, 2000
4.3(10)   Form of Class B Stock Purchase Warrant dated as of February 25, 2002
10.1(6)   Circuit Research Labs, Inc. 1994 Stock Option Plan
10.2(4)   Asset Sale Agreement, dated as of May 31, 2000, by and between
          CRL Systems, Inc. and Orban, Inc.
10.3(4)   Guarantee and Collateral Agreement, dated as of May 31, 2000, by and
          between Circuit Research Labs, Inc., as Parent, CRL Systems, Inc., as
          Borrower, and Orban, Inc., as Lender
10.4(4)   Credit Agreement, dated as of May  31, 2000, by and between
          CRL Systems, Inc., as Borrower, and Orban, Inc., as Lender
10.4.1(4) First Extension Agreement, dated as of September 29, 2000, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to November 30, 2000

                                       71
<PAGE>
Exhibit
Number    Description

10.4.2(2) Second  Extension Agreement, dated as of  November  28, 2000, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to January 20, 2001
10.4.3(2) Third Extension Agreement, dated as of January 18, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to February 20, 2001
10.4.4(2) Fourth Extension Agreement, dated as of February 22, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to May 14, 2001
10.4.5(2) Tranche A Note Extension Agreement, dated as of March 30, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc.
10.4.6(2) Tranche A Note and Tranche B Note Extension Agreement, dated as of
          April 16, 2001, by and between CRL Systems, Inc. and Harman
          Acquisition Corporation, formerly known as Orban, Inc.
10.5(4)   Tranche A Note, dated as of May 31, 2000, from CRL Systems, Inc. to
          Orban, Inc. in the amount of $5,000,000
10.6(4)   Tranche B Note, dated as of May 31, 2000, from CRL Systems, Inc. to
          Orban, Inc. in the amount of $3,500,000
10.7(7)   Amendment to Credit Agreement, dated as of October 1, 2001, by and
          between CRL Systems, Inc. as Borrower, and Harman Acquisition
          Corporation (formerly known as Orban, Inc.), as Lender
10.8(7)   Amended and Restated Tranche A Note, dated as of October 1, 2001, from
          CRL Systems, Inc. to Harman Acquisition Corporation (formerly known as
          Orban, Inc.) in the amount of $5,000,000
10.9(7)   Amended and Restated Tranche B Note, dated as of October 1, 2001, from
          CRL Systems, Inc. to Harman Acquisition Corporation (formerly known as
          Orban, Inc.) in the amount of $3,500,000
10.10(1)  Amendment to Existing Agreements and Closing Declaration, dated as of
          January 18, 2002, among Dialog4 System Engineering GmbH, Berthold
          Burkhardtsmaier, Cornelia  Burkhardtsmaier, Friedrich Maier,  Circuit
          Research Labs, Inc., CRL Systems, Inc. and Charles Jayson Brentlinger
10.11(10) Second Amendment to Existing Agreements and Closing Declaration, dated
          as of March 26, 2002, among Dialog4 System Engineering GmbH, Berthold
          Burkhardtsmaier, Cornelia Burkhardtsmaier, Friedrich Maier, Circuit
          Research Labs, Inc., CRL Systems, Inc. and Charles Jayson Brentlinger
10.12(10) Employment Agreement, dated as of January 1, 2002, by and between
          Charles Jayson Brentlinger and Circuit Research Labs, Inc.
10.13(1)  Service Contract, dated November 16, 2001, by and between Circuit
          Research Labs, Inc. and Berthold Burkhardtsmaier
10.14(10) Employment Agreement, dated as of January 1, 2002, by and between Gary
          D. Clarkson and Circuit Research Labs, Inc.
10.15(10) Employment Agreement, dated as of January 1, 2002, by and between
          William R. Devitt and Circuit Research Labs, Inc.
10.16(10) Employment Agreement, dated as of January 1, 2002, by and between
          Robert W. McMartin and Circuit Research Labs, Inc.
10.17(10) Employment Agreement, dated as of January 1, 2002, by and between Greg
          J. Ogonowski and Circuit Research Labs, Inc.

                                       72
<PAGE>
Exhibit
Number    Description

10.18(5)  Employment Agreement dated as of May 31, 2000 by and between Robert A.
          Orban and Circuit Research Labs, Inc.
10.19(5)  Employment and Consulting Agreement, dated as of March 9, 2001, by and
          between James Seemiller, ATB Broadcasting Corporation and Circuit
          Research Labs, Inc.
10.20(8)  Stock Purchase Agreement, dated as of June 23, 1999, by and between
          Charles Jayson Brentlinger, Circuit Research Labs, Inc., and
          Gary D. Clarkson
10.23*    Second Amended and Restated Employment Agreement dated as of October
          1, 2002 by and between Phillip T. Zeni and Circuit Research Labs, Inc.
10.24*    Employment Agreement dated as of May 1, 2000 by and between Peter J.
          Lee and Dialog4 System Engineering GmbH.
21.1*     Subsidiaries of Circuit Research Labs, Inc.
24.1*     Power of Attorney (included on signature pages of this Report on Form
          10-KSB)
31.1      Certification of Chief Executive Officer pursuant to Item 601(b)(31)
          of Regulation S-B.  (Filed herewith).
31.2      Certification of Chief Financial Officer pursuant to Item 601(b)(31)
          of Regulation S-B.  (Filed herewith).
32.1      Certification of Chief Executive Officer pursuant to item 601(b)(32)
          of Regulation S-B.  (Filed herewith).
32.2      Certification of Chief Financial Officer pursuant to item 601(b)(32)
          of Regulation S-B.  (Filed herewith).
99.3(11)  Letter Agreement between Circuit Research Labs, Inc. and Harman
          Acquisition Corp. dated as of March 27, 2003

 *  Filed herewith.

(1)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     February 4, 2002.

(2)  Incorporated by reference to the Registrant's Registration Statement on
     Form SB-2 (File No. 333-69712) effective November 13, 2001.

(3)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-18 (File No. 2-85779-LA) effective October 14, 1983.

(4)  Incorporated by reference to the Registrant's Report on Form 8-K/A dated
     October 12, 2000.

(5)  Incorporated by reference to the Registrant's Report on Form 10-KSB for the
     fiscal year ended December 31, 2000.

(6)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-8 (File No. 33-82176).

(7)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     October 26, 2001.

(8)  Incorporated by reference to Exhibit A of Schedule 13D filed with the
     Commission by Charles Jayson Brentlinger on July 7, 1999
     (File No. 005-56483).

(9)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     June 26, 2001.

(10) Previously filed with the Registrant's Form 10-KSB for the fiscal year
     ended December 31, 2001.

(11) Incorporated by reference to the Registrant's Report on Form 8-K dated
     April 1, 2003.

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     (b)   During the three months ended December 31, 2003, the Registrant
filed the following reports on Form 8-K:

           None


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     The following table presents fees billed for professional audit services
rendered by Altschuler, Melvoin and Glasser LLP of Illinois for the fiscal
years ended December 31, 2002 and 2003.

        CATEGORY              2002                  2003

        Audit fees            $104,534              $78,644
        Audit-related fees       2,259                    0
        All other fees           1,334                2,546
        Total                 $111,127              $81,190
                              ========              =======

      Altschuler, Melvoin and Glasser LLP (the Firm) has a continuing
relationship with American Express Tax and Business Services, Inc. (TBS) from
which it leases auditing staff who are full time, permanent employees of TBS and
through which its partners provide non-audit services.  As a result of this
arrangement, the Firm has no full time employees and therefore, none of the
audit services performed were provided by permanent full-time employees of the
Firm.  The Firm manages and supervises the audit and audit staff, and is
exclusively responsible for the opinion rendered in connection with its
examination.

      Other services, which do not include Financial Information System Design
and Implementation fees, have been provided by TBS.


                                       74
<PAGE>


                           SIGNATURES

      Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report on Form 10-KSB to
be signed on its behalf by the undersigned, thereunto duly authorized, this 30th
day of April, 2004.

                                   CIRCUIT RESEARCH LABS, INC.

                                   By: /s/ C. Jayson Brentlinger
                                   -----------------------------------
                                   C. Jayson Brentlinger
                                   Chief Executive Officer, President and
                                   Chairman of the Board

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints C. Jayson Brentlinger and Robert W.
McMartin, and any of them (with full power to each of them to act alone), as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-KSB Annual Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and to perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully and to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and/or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-KSB has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.

Signature                        Title                         Date

/s/ C. Jayson Brentlinger        President, Chairman of the    April 30, 2004
------------------------------   Board and Chief Executive
C. Jayson Brentlinger            Officer


/s/ Gary D. Clarkson             Vice President, Secretary     April 30, 2004
------------------------------   and Director
Gary D. Clarkson


/s/ Christopher M. Kampmeier     Director                      April 30, 2004
------------------------------
Christopher M. Kampmeier


/s/ Robert A. Orban              Vice President, Chief         April 30, 2004
------------------------------   Engineer and Director
Robert A. Orban


/s/ Phillip T. Zeni, Sr.         Executive Vice President,     April 30, 2004
------------------------------   Chief Operating Officer
Phillip T. Zeni, Sr.             and Director


/s/ Carl E. Matthusen            Director                      April 30, 2004
------------------------------
Carl E. Matthusen


/s/ Robert W. McMartin           Vice President, Treasurer     April 30, 2004
------------------------------   and Chief Financial Officer
Robert W. McMartin               (principal accounting officer)

                                       75
<PAGE>

                          Exhibit Index
Exhibit
Number    Description

2.1(1)    Asset Sale and Purchase Agreement, dated as of November 16, 2001,
          among  Dialog4  System  Engineering  GmbH, Berthold Burkhardtsmaier,
          Cornelia Burkhardtsmaier, Friedrich Maier, Circuit Research Labs, Inc.
          and CRL Systems, Inc.
3.1(2)    Restated Articles of Incorporation of the Company
3.1a(2)   Articles of Amendment to the Company's Restated Articles of
          Incorporation
3.1b(2)   Articles of Amendment to the Company's Restated Articles of
          Incorporation
3.2(3)    Bylaws of the Company
4.1(4)    Warrant to Harman Acquisition Corp. (formerly known as Orban, Inc.),
          dated as of May 31, 2000
4.2(5)    Form of Class A Stock Purchase Warrant dated as of May 30, 2000
4.3(10)   Form of Class B Stock Purchase Warrant dated as of February 25, 2002
10.1(6)   Circuit Research Labs, Inc. 1994 Stock Option Plan
10.2(4)   Asset Sale Agreement, dated as of May 31, 2000, by and between
          CRL Systems, Inc. and Orban, Inc.
10.3(4)   Guarantee and Collateral Agreement, dated as of May 31, 2000, by and
          between Circuit Research Labs, Inc., as Parent, CRL Systems, Inc., as
          Borrower, and Orban, Inc., as Lender
10.4(4)   Credit Agreement, dated as of May  31, 2000, by and between
          CRL Systems, Inc., as Borrower, and Orban, Inc., as Lender
10.4.1(4) First Extension Agreement, dated as of September 29, 2000, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to November 30, 2000
10.4.2(2) Second  Extension Agreement, dated as of  November  28, 2000, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to January 20, 2001
10.4.3(2) Third Extension Agreement, dated as of January 18, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to February 20, 2001
10.4.4(2) Fourth Extension Agreement, dated as of February 22, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc., extending the maturity date of the Tranche B
          Note to May 14, 2001
10.4.5(2) Tranche A Note Extension Agreement, dated as of March 30, 2001, by and
          between CRL Systems, Inc. and Harman Acquisition Corporation, formerly
          known as Orban, Inc.
10.4.6(2) Tranche A Note and Tranche B Note Extension Agreement, dated as of
          April 16, 2001, by and between CRL Systems, Inc. and Harman
          Acquisition Corporation, formerly known as Orban, Inc.
10.5(4)   Tranche A Note, dated as of May 31, 2000, from CRL Systems, Inc. to
          Orban, Inc. in the amount of $5,000,000
10.6(4)   Tranche B Note, dated as of May 31, 2000, from CRL Systems, Inc. to
          Orban, Inc. in the amount of $3,500,000
10.7(7)   Amendment to Credit Agreement, dated as of October 1, 2001, by and
          between CRL Systems, Inc. as Borrower, and Harman Acquisition
          Corporation (formerly known as Orban, Inc.), as Lender
10.8(7)   Amended and Restated Tranche A Note, dated as of October 1, 2001, from
          CRL Systems, Inc. to Harman Acquisition Corporation (formerly known as
          Orban, Inc.) in the amount of $5,000,000

                                       76
<PAGE>
10.9(7)   Amended and Restated Tranche B Note, dated as of October 1, 2001, from
          CRL Systems, Inc. to Harman Acquisition Corporation (formerly known as
          Orban, Inc.) in the amount of $3,500,000
10.10(1)  Amendment to Existing Agreements and Closing Declaration, dated as of
          January 18, 2002, among Dialog4 System Engineering GmbH, Berthold
          Burkhardtsmaier, Cornelia  Burkhardtsmaier, Friedrich Maier,  Circuit
          Research Labs, Inc., CRL Systems, Inc. and Charles Jayson Brentlinger
10.11(10) Second Amendment to Existing Agreements and Closing Declaration, dated
          as of March 26, 2002, among Dialog4 System Engineering GmbH, Berthold
          Burkhardtsmaier, Cornelia Burkhardtsmaier, Friedrich Maier, Circuit
          Research Labs, Inc., CRL Systems, Inc. and Charles Jayson Brentlinger
10.12(10) Employment Agreement, dated as of January 1, 2002, by and between
          Charles Jayson Brentlinger and Circuit Research Labs, Inc.
10.13(1)  Service Contract, dated November 16, 2001, by and between Circuit
          Research Labs, Inc. and Berthold Burkhardtsmaier
10.14(10) Employment Agreement, dated as of January 1, 2002, by and between Gary
          D. Clarkson and Circuit Research Labs, Inc.
10.15(10) Employment Agreement, dated as of January 1, 2002, by and between
          William R. Devitt and Circuit Research Labs, Inc.
10.16(10) Employment Agreement, dated as of January 1, 2002, by and between
          Robert W. McMartin and Circuit Research Labs, Inc.
10.17(10) Employment Agreement, dated as of January 1, 2002, by and between Greg
          J. Ogonowski and Circuit Research Labs, Inc.
10.18(5)  Employment Agreement dated as of May 31, 2000 by and between Robert A.
          Orban and Circuit Research Labs, Inc.
10.19(5)  Employment and Consulting Agreement, dated as of March 9, 2001, by and
          between James Seemiller, ATB Broadcasting Corporation and Circuit
          Research Labs, Inc.
10.20(8)  Stock Purchase Agreement, dated as of June 23, 1999, by and between
          Charles Jayson Brentlinger, Circuit Research Labs, Inc., and
          Gary D. Clarkson
10.23*    Second Amended and Restated Employment Agreement dated as of October
          1, 2002 by and between Phillip T. Zeni and Circuit Research Labs, Inc.
10.24*    Employment Agreement dated as of May 1, 2000 by and between Peter J.
          Lee and Dialog4 System Engineering GmbH.
21.1*     Subsidiaries of Circuit Research Labs, Inc.
24.1*     Power of Attorney (included on signature pages of this Report on Form
          10-KSB)
31.1      Certification of Chief Executive Officer pursuant to Item 601(b)(31)
          of Regulation S-B.  (Filed herewith).
31.2      Certification of Chief Financial Officer pursuant to Item 601(b)(31)
          of Regulation S-B.  (Filed herewith).
32.1      Certification of Chief Executive Officer pursuant to item 601(b)(32)
          of Regulation S-B.  (Filed herewith).
32.2      Certification of Chief Financial Officer pursuant to item 601(b)(32)
          of Regulation S-B.  (Filed herewith).
99.3(11)  Letter Agreement between Circuit Research Labs, Inc. and Harman
          Acquisition Corp. dated as of March 27, 2003

 *  Filed herewith.

(1)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     February 4, 2002.

(2)  Incorporated by reference to the Registrant's Registration Statement on
     Form SB-2 (File No. 333-69712) effective November 13, 2001.

                                       77
<PAGE>
(3)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-18 (File No. 2-85779-LA) effective October 14, 1983.

(4)  Incorporated by reference to the Registrant's Report on Form 8-K/A dated
     October 12, 2000.

(5)  Incorporated by reference to the Registrant's Report on Form 10-KSB for the
     fiscal year ended December 31, 2000.

(6)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-8 (File No. 33-82176).

(7)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     October 26, 2001.

(8)  Incorporated by reference to Exhibit A of Schedule 13D filed with the
     Commission by Charles Jayson Brentlinger on July 7, 1999
     (File No. 005-56483).

(9)  Incorporated by reference to the Registrant's Report on Form 8-K dated
     June 26, 2001.

(10) Previously filed with the Registrant's Form 10-KSB for the fiscal year
     ended December 31, 2001.

(11) Incorporated by reference to the Registrant's Report on Form 8-K dated
     April 1, 2003.

                                       78
<PAGE>